Savings Account
Definition
A savings account is a deposit account held at a bank or other financial institution that offers security of principal and usually pays interest on the funds deposited.
Detailed Explanation
A savings account is a bank account used primarily for saving money and earning interest on the deposited funds. Savings accounts tend to offer higher interest rates than checking accounts, making them an ideal choice for storing money you don't need to cover day-to-day expenses.
These accounts encourage individuals to save money for future needs or emergencies. Funds grow over time with the help of compound interest. It can be a bit harder to access money in a savings account than a checking account. Depositors can withdraw money and transfer funds, but some savings accounts are limited to six withdrawals per month, and not all can be linked to a debit card.
Savings accounts are primarily offered by banks and credit unions, and are usually insured by the FDIC or NCUA up to applicable limits, providing a safe environment for depositing personal funds.
Example
Emily opens a savings account at her local bank and starts depositing $200 every month. The account has an annual interest rate of 1.5%. Her deposits are not only safe but grow due to the interest, which compounds monthly, helping her build a substantial emergency fund over time.
Key Articles Related To Savings Accounts
Related Terms
Compound Interest: Interest calculated on the initial principal and also on the accumulated interest of previous periods.
FDIC (Federal Deposit Insurance Corporation): A United States government corporation providing deposit insurance to depositors in U.S. commercial banks and savings institutions.
Interest Rate: The percentage of a loan amount charged by the lender to the borrower for the use of the money.
Regulation D: A federal regulation that limits the number of certain types of withdrawals and transfers from savings or money market accounts to six per statement cycle.
FAQs
How often can I withdraw from my savings account?
You can typically make up to six withdrawals or transfers per month from a savings account without penalties due to Regulation D limits.
Do all savings accounts earn the same interest rate?
No, interest rates on savings accounts can vary significantly between different banks and financial institutions, and they can change based on economic conditions.
Is money in a savings account locked for a certain period?
No, money in a savings account is not locked and can be accessed at any time.
Editor: Colin Graves