A savings account is a bank account where you can store money and earn interest. They are federally insured for up to $250,000 if the bank fails in some way (bankruptcy).
Most people have a savings account to keep money separate from their checking accounts, which are used for everyday spending. Money in savings accounts is used for vacations, emergency funds, or retirement.
Important things to know about savings accounts:
- When you have a savings account, the bank is able to lend money to other customers (loans), so the little interest is their way of thanking you.
- The national average interest rate is 0.09%. Most banks give low interest. The ones that give higher rates are usually online banks that don’t have to support brick-and-mortar stores. These accounts have low deposit requirements, don’t charge monthly maintenance fees, and can go up to 2% APY.
- APY (Annual Percentage Yield) is the annual rate of return taking into account the effect of compounding interest. This is assuming the funds will remain in the savings account for a full year.
- Savings account money isn’t as easily accessible as checking account money. Federal law limits the numbers of transfers or withdrawals from a savings account to six times per month. After that, a fee is charged. Taking money out through a store teller or ATM doesn’t count towards this limit.
- We recommend keeping at least three to six months worth of living expenses in your savings account.
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