Do You Need to Have a Savings Account?

Recent data shows that the average American has more than five different bank accounts. These accounts may include checking accounts, money market accounts, certificates of deposit (CDs), or even savings accounts, and can be spread across a number of different financial institutions.

While checking accounts serve as the “everyday” bank account for most consumers, savings accounts can be just as — if not more — important. Here’s a look at what savings accounts offer and whether it’s worth it to open one for yourself.

What Is a Savings Account?

As the name suggests, a savings account is a type of depository bank account intended to hold your hard-earned savings. These are offered by banks, credit unions, and other financial institutions, and can often be a great place to tuck your money until you need it.

You might choose to put your money in a savings account if you:

• Want to earn more interest on your emergency savings

• Need to put your cash “out of reach” so you aren’t tempted to spend it

• Are saving up for certain goals or large purchases, like the down payment on a house

Savings accounts typically earn a higher interest rate (expressed as APY, or annual percentage yield) than checking accounts. The caveat is that these accounts aren’t intended for daily transactions and may have certain limits in place that can affect how or when you manage your funds. And depending on the bank you choose and other factors, you may or may not encounter fees with a savings account.

When It’s Worth Opening a Savings Account

So, when does it make sense to get a savings account? There are a few situations when it’s probably worthwhile.

When you can earn a high(er) interest rate on your money

According to the FDIC, the average interest earned on a savings account is more than five times what you’d earn with an interest-bearing checking account. (Not to mention, not all checking accounts earn interest to begin with.) If you were to opt for a high-yield savings account, you could earn an even greater return on your savings than with a standard savings account. 

By putting your money in a dedicated savings account, you can amplify your returns and make your savings go even further than before.

When you’re planning for the unexpected

A savings account can be a great idea if you’re looking to build up an emergency fund and need somewhere safe to put your money. 

An emergency fund can provide you with a financial safety net that can be used in case of

• unplanned medical bills

• sudden household repairs 

• unexpected expenses

Rather than taking out a loan or racking up credit card debt, an emergency fund can come in handy if you ever find yourself facing a big or unplanned expense.

When you’re working toward future goals

Are you planning to buy a house in the next few years and need to save for a down payment? Maybe you need a new car or are saving up for your child’s education? 

For some people, it can be difficult to save for these types of big goals without putting that money “out of sight, out of mind.” This is where a savings account comes into play.

You might open one savings account for all of your goals, or individual accounts for each specific goal. You can even automate your savings efforts so your balance grows passively over time. 

When you can bank the way you like

Since savings accounts are offered by a variety of financial institutions, you might find that the right account for you isn’t at a bank you already use. However, if that savings account allows you to manage it how you like, it could be worthwhile.

Before choosing your savings account, be sure to consider your preferences for:

• Deposits — Do you need to make cash deposits in person or would an online-only bank still meet your needs with mobile check deposit and ACH transfers?

• Mobile banking — Do you prefer to check your balance and manage your account with a robust mobile app? 

• Withdrawals and transfers — How does the bank allow for withdrawals and outgoing transfers of your money? Decide if you need in-person teller services, ATM access, paper checks, or the ability to connect your various accounts for moving money around.

If you’re able to find a bank that aligns with your personal preferences and needs, it could be worth opening a savings account there.

When you don’t have to worry about fees or penalties

While fees are more common with checking accounts, you may still come across them with savings accounts, too. These fees and added costs can eat into your balance and cost you unnecessary money each year, so finding the right account can often mean limiting or eliminating these.

Banks may charge fees for monthly account maintenance, ATM withdrawals, teller services, low balances, and more. First look at how you bank and how you plan to use this account, then choose a savings account that won’t cost you extra money.

When you don’t plan to touch your money too often

Consumers used to be limited in the number of withdrawals they could make from their savings accounts each month. If they exceeded this limit — usually set at six — they could be penalized, their account could be converted to a transactional (checking) account, or they could even see it forcibly closed.

As a result of the COVID-19 pandemic, this rule was amended and these limits were removed. But even though they aren’t federally mandated any longer, there are some banks that can still choose to enforce these monthly withdrawal limits.

A savings account can be a great place to tuck your money if you don’t plan to use it often or for a long time. If you’re banking with an institution that still enforces that six-transaction limit, though, touching your savings infrequently can save you both hassle and money.

Bottom Line

Savings accounts operate differently than transactional accounts, and can be a good choice if you’re looking to maximize your returns, plan for the future, or simply protect yourself financially. In most cases, getting a savings account is absolutely worth it, especially if you’re able to find an account that offers a high APY and few (or no) fees.