Savings accounts serve different purposes than checking accounts. A checking account makes paying monthly bills convenient, but a savings account provides a special place to keep your surplus. Unlike real estate and stocks, a savings account isn't likely to earn large profits. In fact, it often pays a lower interest rate than a bank certificate of deposit. However, a savings account is a convenient place to stash extra cash.
A savings account keeps your deposits separate from your other money, such as cash on hand, checking accounts or long-term investments. Making regular deposits and seeing it grow can help motivate you to save. It's an ideal vehicle to save for a specific purpose, such as new furniture, a wedding or a vacation. If you want to save for several different goals, simplify your bookkeeping by opening multiple accounts.
A savings account keeps your money safe if you pick an institution covered by government insurance and stay within the insurance limits. The Federal Deposit Insurance Corporation insures banks, and the National Credit Union Share Insurance Fund insures credit unions. At the time of publication, in July 2012, the government insured deposits up to $250,000 for accounts in any one name in an insured institution. If the bank or credit union goes bankrupt, you still get your insured deposits back.
Savings accounts allow easy access to your money whenever you need it. You can take out money as often as you like using an ATM, bank teller, online banking transfer or mail withdrawal. However, federal law allows a maximum of six electronic transfers, telephone transfers or preauthorized payments each month, and only three of these can be by debit card. This is much quicker access than with bank certificates of deposit and involves no penalties.
You can open a savings account where you already have a checking account, such as in a bricks-and-mortar institution, or in another bank or online. Some savings accounts require an opening balance of $500 or more, while others court small savers with a low starting balance of $1. Check all the terms before you open an account because some institutions charge a monthly fee if you fall below a minimum balance.
The interest rate on a savings account depends upon the institution. According to Bankrate.com, you usually get the best rates at online banks, but you have to make sure monthly fees won't eat up your gains. Compare rates and fees at several institutions, both locally and online, and ask about special offers. For example, you may qualify for a better rate if you already have a checking account at a bank or because of your age.