A savings account is a fundamental tool of personal finance. Learn how these accounts work, how to shop for one, and how they can help your money work for you.
A savings account is a simple bank account that allows you to deposit money, keep it safe, and withdraw funds, all while earning interest on the amount deposited. Savings accounts offered by most banks, credit unions, and other financial institutions are insured by the government. Most banks limit the number of transactions you can make with a savings account, which can be a good thing if you’re trying to rein in spending and “save.”
A high-yield savings account is a lot like a traditional savings account with one big exception: It offers higher interest rates. These accounts are commonly found at online banks, which means you sacrifice the convenience of branch banking. They may also require higher minimum deposits than regular savings accounts.
When you lend money, you typically get your money back plus a little bit extra. That extra is the "interest," or your compensation for letting somebody else use your money. The same is true when you deposit funds into a savings account. Most savings accounts pay “compound interest,” which means you earn interest on the principal plus on any interest you have earned previously. You can calculate interest earned using our spreadsheet calculator.
Savings accounts are designed to keep your money safe while paying a modest amount of interest on your account balance. Most banks will limit the number of transactions you can make with your savings account. A checking account is designed for frequent transactions, and you can use your money in a variety of ways—paper checks, electronic payments, debit cards, ATMs, and more.
Most banks and credit unions make it pretty easy to open a savings account. In fact, the hardest part may be choosing a bank or credit union. Once that’s done, you provide the bank with some details, fund the account, and you’re on your way.
Compound interest is interest earned from the original principal plus accumulated interest. Not only are you earning interest on your beginning deposit, you're earning interest on the interest.
Your available balance is the amount you can spend right now. You can think of it as "funds available to withdraw." Sometimes you’ll see an available balance that’s less than your account balance. The rest of the money is being held by your bank for various reasons.
Annual percentage yield is the annual percentage of profit earned on an investment, which takes into account the effect of compounding interest. It's a helpful metric to have on-hand when you decide which bank is best and what type of account to select to maximize your interest payments.
Simple interest is a specific way of measuring interest that does not account for multiple periods of interest payments or charges. The interest rate will only apply to the principal amount of the loan or investment—it won't be affected by any interest accrued as with compound interest.
A wire transfer is a way of moving money electronically between two banks. A traditional money wire goes from one bank to another using a network such as the Society for Worldwide Interbank Financial Telecommunication (SWIFT) or Fedwire.
A money market account (MMA) is essentially a savings account that has some of the features of a checking account. You'll usually get checks or a debit card, and you can make a few transactions each month, but you won't have quite the freedom of a typical checking account.
A savings account is a basic type of bank account that allows you to deposit money, keep it safe, and withdraw funds, all while earning interest. Savings accounts offered by most banks, credit unions, and other financial institutions are insured and typically pay interest on your deposits.
Automated clearinghouse (ACH) payments are electronic payments to a biller that pull funds directly from your checking account. Instead of writing out a paper check or initiating a debit or credit card transaction, the money moves automatically.
The National Credit Union Share Insurance Fund (NCUSIF) is a government-backed insurance fund for credit union deposits. It functions through the National Credit Union Administration (NCUA), which is a U.S. government agency. Like FDIC insurance, NCUSIF covers up to $250,000 per account holder per institution.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency—created by the U.S. government—designed to protect consumers in the U.S. financial system. The FDIC is best known for deposit insurance, which helps protect customer deposits in case a bank fails.
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