Savings Account
Definition
A deposit account at a bank or credit union that earns interest on your balance, designed for setting money aside rather than daily transactions, with FDIC insurance up to $250,000.
Savings accounts are the foundation of personal finance — the first place to build an emergency fund and store short-term savings goals. They offer safety (FDIC insured), liquidity (withdraw anytime), and modest returns through interest. The tradeoff is lower returns compared to investments.
Traditional bank savings accounts pay negligible interest (0.01-0.10% APY at major banks). High-yield savings accounts at online banks offer dramatically better rates — often 4-5% APY, a difference of 100-500x. On a $10,000 balance, this difference is $1 versus $450+ per year. There's no good reason to accept a traditional savings rate.
Regulation D historically limited savings account transactions to 6 per month. While the Fed suspended this limit in 2020, many banks still impose it or charge excess transaction fees. This makes savings accounts unsuitable for daily spending — that's what checking accounts are for.
The optimal savings account strategy involves maintaining separate accounts for different goals: emergency fund, vacation savings, car fund, home down payment. Many online banks allow you to create multiple sub-accounts or "buckets" within one savings account, each with its own goal and balance.
For amounts beyond the $250,000 FDIC insurance limit, spread deposits across multiple banks or use a CDARS/IntraFi network that distributes your deposit across multiple banks while providing single-statement convenience. Joint accounts increase the limit to $500,000 per institution.
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Frequently Asked Questions
How much should I keep in a savings account?
Keep 3-6 months of essential expenses as an emergency fund. Beyond that, keep money for goals you'll need within 1-3 years (vacation, car down payment, etc.). Money you won't need for 5+ years should generally be invested, as even high-yield savings barely keeps pace with inflation.
Are online savings accounts safe?
Yes — online bank deposits are FDIC insured up to $250,000 per depositor, same as any traditional bank. The higher rates online banks offer come from lower overhead (no branches), not higher risk. Verify FDIC membership at fdic.gov before depositing.