Reviewed by Aug 27, 2020| Updated on
What is a Savings Account?
A savings account refers to a bank or other financial entity holding interest-bearing savings account. While usually, these accounts pay a moderate interest rate, their stability and reliability make them a great choice for parking cash that you want to be available for short-term needs.
Savings plans have some restrictions on how frequently you can withdraw money, but typically offer excellent flexibility that is perfect for creating an emergency fund, saving for a short-term target of buying a car or going on vacation, or simply sweeping the excess cash that you don't need in your bank account so it can gain more interest elsewhere.
How Does It Work?
Savings and other bank accounts are an important source of funds that financial institutions may turn around and lend to others. For this purpose, you can find savings accounts at nearly any bank or credit union, whether they are conventional brick and mortar institutions or run exclusively online. You can also find savings accounts at certain securities and brokerage firms.
In general, the amount you would receive on a savings account is variable. With the exception of promotions that guarantee a fixed rate up to a given date, banks and credit unions may usually increase or decrease their savings account rate at any time.
Typically, the more competitive the cost, the more likely that a fluctuation would be over time. Changes in the cost of federal funds may also cause institutions to change their cost of the deposit. Some companies offer special high-yield savings accounts worth exploring.
Some savings accounts would require a minimum balance to escape monthly fees or gain the highest published rate, while others do not have a minimum requirement for balance. So understanding the rules of your specific account is crucial to make sure you avoid diluting your earnings with fees.