What Is a Savings Account? Definition and more

Learn the Definition of a Savings Account

jar of change with savings label, person in background using calculator
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A savings account is an account used to deposit money at a bank or credit union and earn interest on the account over time. The purpose of the account is for saving money that you want to have good access to but you don't need for daily expenses. This type of account is often the easiest account for children to open. Because of its simplicity, it is the first account for many people and is used by people all ages.

Savings accounts are also considered a very safe account. At most institutions, they are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) for up to $250,000 per owner. You should check to ensure your accounts are insured.

Also Known As: Passport savings or statement savings.

Opening a Savings Account

Traditionally, a savings account could be opened by depositing as little as a dollar and they had no fees. But some banks require a minimum amount to open or maintain a savings account without fees. You should always ask about minimum amount requirements and what fees would be charged. To open an account, you need identification and a Social Security number or Tax Identification Number.

You will very often receive a bank card when you open a savings account. Some bank cards can be used as debit cards to deposit or withdraw funds from the savings account at automated teller machines.

There may be a fee for use of the bank card or transactions performed with it may be free.

Making Deposits into Savings Accounts

Money can be added or removed from the account by visiting the bank. Adding money is known as making a deposit. When you do it in person at the bank, you typically must fill out a deposit slip or use pre-printed slips provided to you with the account.

You list the cash and checks being deposited. The teller takes the money and checks and updates the amount in your account. You receive a receipt of the transaction. Some banks also allow deposits and transfers by mail or by mobile app. There is generally no limit on the number of deposits you can make into a savings account each month.

Making Withdrawals from Savings Accounts

Savings accounts may have a limit to the number of withdrawals that are allowed per month, or it might incur fees or a request from the bank to downgrade the account to a checking account. In general, if you plan more than six withdrawals per month, you should consider a checking account rather than a savings account.

If you have a debit card that is tied to the savings account, you can use it to withdraw money from automatic teller machines.

Interest on Savings Accounts

Interest on savings accounts is generally very low. It is usually far lower than certificates of deposit, for example. That is part of the trade-off for them being insured. Interest must be reported as unearned income and is taxable.

 After children open a savings account, the next account they often open is a checking account.

Helpful Savings Account Information: