What is a savings account, and how does it work? The term savings accounts refer to a type of bank account where you deposit money into an account and then withdraw the amount at a later date.
This type of account is usually offered by banks or other financial institutions.
Savings accounts are a great way to save money for future expenses and this is why we look at savings accounts in closer detail in this article, including their benefits and restrictions and how exactly one works within a bank or credit union.
Let’s jump in.
What Is A Savings Account?
A savings account is a type of bank account that allows you to deposit money into the account and then withdraw the funds at a later time.
The name “savings” comes from the fact that the money deposited into the account will be available to use when needed.
You may also hear people refer to these types of accounts as checking accounts because they’re similar to regular checking accounts. However, there are some key differences between them.
The main differences between a savings and a checking account are :
1. Money deposited into a savings account is not immediately available. Instead, you must wait until the end of each month before withdrawing any money.
2. Withdrawing money from a savings account requires more paperwork than with a checking account.
3. Interest rates on savings accounts tend to be lower than those on checking accounts.
4. Checking accounts typically have higher minimum opening balances than savings accounts.
5. There are no overdraft fees associated with savings accounts.
6. Savings accounts do not require monthly statements like checking accounts.
7. Some savings accounts come with insurance against theft.
8. Many savings accounts are FDIC insured.
9. Most savings accounts are subject to federal taxation.
10. Saving money in a savings account gives you the option to make withdrawals at any time during the year.
Opening A Savings Account
You can open a savings account with any bank or credit union. To do so, visit their website and click on the link to open an account.
Once you’ve done this, you’ll need to fill out a form and provide information about yourself (like your address) and the institution you want to open the account with.
After filling out the form, you’ll have to wait until your application is approved before you can access the funds.
Some banks charge fees for opening a savings account. These fees range anywhere from $10-$25 and typically depend on the size of the account.
If you don’t mind paying these fees, you should consider opening a savings account to keep your money safe and your money growing.
Benefits Of Opening A Savings Account
Savings accounts offer many benefits. Here are just a few:
- Interest rates are generally lower than those offered by checking accounts
- The money in your savings account grows tax-free
- Your money is protected from theft and fire
- You can earn interest without having to worry about making monthly payments
- You can easily transfer money between different accounts
- You can easily monitor your money
- You can reach your savings goal a lot easier
- You have money stocked away for unexpected expenses that occur throughout the year
Depositing Money Into A Savings Account
You can make deposits into your savings account whenever you like. Moreover, when you first set up the account, you’ll be asked if you’d like to receive paper statements.
If you do not wish to receive paper statements, simply select “no” if you are filling the application out online. You can also opt out of receiving paper statements at any time.
Just go online to your account statement page and change your settings. Regular statements help you keep an eye on the deposits you make and any withdrawals.
You can add money to your savings account using the following methods:
- Cash or check deposits at an ATM
- ACH transfers from another linked bank account
- Cash or check deposits at your branch
- Wire transfers from other bank accounts
- Check deposits from your mobile
- Direct deposit interest rate
Remember, the higher your APY, the more you deposit and the longer you save with the account, the more your money can increase over time.
Withdrawing From A Savings Account
Once you’ve opened a savings account, and you meet the requirements, you can start withdrawing money from the account at any time.
As long as you meet certain requirements, you can withdraw the full balance from your savings account.
In most cases, before you can withdraw money from your savings account, however, you must notify the bank. They’ll send you a letter stating that you can withdraw your money.
Then, you’ll have to sign the letter and return it to the bank. Once you’ve returned the letter, the bank will give you a withdrawal slip. This is what you’ll use to withdraw the money from the account.
Do I Have Any Restrictions On What I Can Put Into My Savings Account?
Yes. There are several things you cannot deposit into your savings account. First, you cannot deposit cash. Second, you cannot deposit checks that bounce or are dishonored by the bank.
Third, you cannot deposit items that are stolen or embezzled. Finally, you cannot deposit securities such as stocks, bonds, mutual fund shares, etc.
If you try to deposit something illegal, the bank will reject your transaction, and you won’t be able to deposit the item.
Types Of Savings Accounts
Standard Savings Account
Standard savings accounts are the most offered savings option, and you can find these at many banks and credit unions.
With this type of account, you will typically earn a lower APY and you might be subject to monthly maintenance or a minimum balance fee.
High-Yield Savings Accounts
High-yield savings accounts offer a higher APY. You’re likely to find these types of savings accounts at online banks and due to their lower overhead, online banks might charge fewer fees.
Money Market Accounts
Money market accounts combine features of a savings account with those of a checking account.
This means you can earn interest on your balance, and you also can write checks or make withdrawals and/or any purchases with a regular debit card.
Specialized Savings Accounts
Some banks offer savings accounts that are specially designed for only one purpose. You might be able to open a savings account just for Christmas for example or to save money for a down payment on a house.
These types of accounts often have more restrictions however on when you can withdraw money etc.
Kids and Student Savings Accounts
Children and students can get a savings account of their own with special accounts set up that are designed for them.
In most cases, these accounts have an age cutoff and are purely designed to help children and students learn how to save. These are more common at traditional brick-and-mortar banks over online banks.
Final Thoughts
We hope after reading this article you know everything you need to know about savings accounts and how they work.
We have gone over deposits, withdrawals, savings interest rates, and different types of savings accounts, so why not open one yourself and get saving that dollar! We promise your future you will thank us.
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