Should I open a savings account?

Here’s why you should have this basic type of account

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Everyone should have a savings account. It’s a safe place to store money you don’t need in the short term and can also provide passive income in the form of interest.

The simple act of putting money into a savings account (versus a checking account or no account) can also help reduce the temptation to spend that money. Anyone interested in building their savings for short- and long-term financial goals should consider opening a savings account.


Key insights

  • Everyone should have a savings account. The earlier you open one and start putting away money, the more time you have to save for your financial goals.
  • An FDIC-insured savings account provides a safe place to save and grow your money.
  • When choosing a savings account, consider features like interest rates, fees and how easy it is to access your money.

Why you should have a savings account

Savings accounts are a quick and convenient place to stash cash, and everyone should have one, says Taylor Kovar, a certified financial planner and CEO of Kovar Wealth Management in Lufkin, Texas.

Kovar says one of the main reasons he encourages people to open a savings account is to help them make changes to their financial habits. He believes if people go through the effort of opening a savings account, then “they will commit to actually using it.”

» MORE: How to manage your money

There are several other important reasons to open a savings account, including:

To separate spending money and savings
Unlike a checking account, which is built to support regular deposits and withdrawals, a savings account is not for everyday use. Instead, its purpose is to hold money you don’t need in the short term.

Separating your spending money from your savings can reduce the temptation to spend and help you achieve your savings goals.

To earn interest
Funds in a savings account earn interest , allowing your money to grow.

According to the Federal Deposit Insurance Corporation (FDIC), the average national deposit rate for a savings account at the time of publishing is 0.35%; for a checking account, it is 0.06%. You can earn an even higher interest rate if you deposit your money in a high-yield savings account.

To track different savings goals
Having multiple savings accounts can help you save for different financial goals. For instance, you might have one savings account for an emergency fund and another earmarked for a vacation.
To keep your money safe

If you open a savings account at a bank insured by the FDIC, you can rest easy knowing your money is protected even if the bank fails. At an FDIC-insured bank, your account is covered up to $250,000.

How to choose a savings account

There are many saving account options to choose from. Factors to consider when narrowing down your options include:

  • Interest rate: One of the primary benefits of a savings account is earning interest. If you want to maximize the interest you earn, consider opening a high-yield savings account.
  • Initial deposit requirement: Some financial institutions require a minimum initial deposit to open an account.
  • Minimum balance requirements: Some savings accounts require you to keep a minimum balance in your account. In exchange, the financial institution waives certain fees or pays a higher interest rate.
  • Fees: There are a variety of fees to look out for when comparing savings accounts, including transaction fees, overdraft fees, nonsufficient fund (NSF) fees, outgoing wire fees and monthly maintenance fees. Your bank may waive monthly fees if you meet certain requirements, such as maintaining a minimum balance or having a linked checking account.
  • Online banking options: If convenience is important to you, then check to make sure the financial institution you choose offers online banking or a mobile app.
  • Access: While a savings account isn’t meant for daily transactions, you might still need to make a withdrawal here and there. Consider how you can access your money and how long it will take. Are there ATMs close by? Can you easily transfer money online from your savings to your checking account before you make a withdrawal? Are there fees associated with making a withdrawal?
  • Withdrawal limits: In addition to withdrawal fees, savings accounts often limit the number of transfers or withdrawals you can make in a month. Go over the limit, and you may incur a fee.

Also consider the type of savings account you want to open. Common types of savings accounts include:

  • Traditional account: This is a standard savings account you find at a bank or credit union. You can earn interest, though it might not be the highest rate, and you may have to meet minimum balance requirements or pay a monthly maintenance fee. A traditional savings account is good for anyone who wants to start saving.
  • High-yield savings account: If your goal is to get the highest interest rate available, consider a high-yield savings account. Many online banks and “neobanks” (fintech companies offering things like checking and savings accounts through an app or website) offer higher interest rates than traditional brick-and-mortar banks.
  • Money market account: A money market account (MMA) is another type of savings account available at traditional and online banks as well as credit unions. MMAs often offer higher interest rates than regular savings accounts but require higher initial deposits to open the account. Unlike most savings accounts, some MMAs come with a debit card and checks, which can make it easier to access your money.

» MORE: Is a high-yield savings account really high-yield?

Online vs. brick-and-mortar savings account

The main difference between an online and a brick-and-mortar savings account is that with an online account, you usually don’t have access to a physical bank branch. There is no face-to-face option if you want to ask a question or withdraw cash; everything is done online using your mobile device or desktop computer.

“Usually, brick-and-mortar savings accounts are going to pay less interest and have a few more requirements than an online savings account,” said Kovar from Kovar Wealth Management. But “this doesn’t mean you should ignore a savings account at your local bank or credit union.”

Deciding between an online or brick-and-mortar bank primarily comes down to what features you prefer in a bank.

When you’re trying to decide between a brick-and-mortar and online savings account, Kovar says it  makes sense to consider opening a savings account at a traditional bank “when you need to build a good banking relationship with someone.”

For instance, if you plan to open a business, buy a rental property or take on a project that requires you to routinely borrow money, Kovar said, “Having a savings account at your local brick-and-mortar is preferred, since it shows that you are loyal to them.” He added, “Typically, the more loyal you are to a brick-and-mortar, the more loyal they will be with you.”

Ultimately, it comes down to what you want and need from your bank. If you just want to open a savings account and your goal is to save as much as you can on fees, you might prefer an online account. If you prefer face-to-face interaction and want to build loyalty with your bank, a savings account at a traditional bank may be a better fit. Keep in mind: Nothing is stopping you from having both an online and traditional account.

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FAQ

What are the cons of a savings account?

Many savings accounts come with minimum balance requirements and a variety of potential fees, including monthly maintenance fees, ATM fees, overdraft fees and NSF fees.

How much money should I keep in my savings account?

It depends on what you are saving for. If you’re using your savings account to grow an emergency fund, then you should aim to save three to six months’ worth of living expenses.

Should I open a savings account for my kids?

Opening a savings account for your kids can help them get a head start on saving for their future. The earlier they start saving, the more time they have to grow their savings. As your children get older, a savings account provides a great opportunity for you to teach them good money management habits.

Bottom line

Not only can a savings account provide a safe place to store your money, but you can also earn passive income in the form of interest. When deciding which savings account is right for you, start by seeing if the account is FDIC-insured. Then, compare providers on features like fees, interest rates and minimum balance requirements.

A savings account is a key financial tool that is right for everyone. The sooner you can open a savings account and start setting money aside, the better.


Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
  1. Federal Deposit Insurance Corporation, “ National Rates and Rate Caps .” Accessed Feb. 15, 2023.
  2. Federal Deposit Insurance Corporation, “ Deposit Insurance FAQs .” Accessed Feb. 15, 2023.
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