What is a savings account?
A savings account is a place where you can store cash securely — unlike investment accounts, they are federally insured — while you earn interest on your money.
Why you need a savings account?
Using a savings account creates some distance between everyday spending money and cash that’s meant for a later date, like an emergency fund or vacation savings.
Do You Need a Savings Account?
It’s generally wise to have a savings account, and they’re often free — especially at online banks and community banks and credit unions.
Without a savings account, where are you going to keep money that you don’t plan to spend in the immediate future? It’s unsafe to hold cash, and there’s a psychological benefit to using a savings account: It’s tempting to spend money that you’ve got in-hand (or in a checking account), so a savings account helps you set funds aside and reach your goals.
Bank accounts make it easier to function in the modern world. You can get by without one, but you’ll spend a lot more time and money on things that could be avoided if you open an account.
What you need to know about savings accounts
Savings accounts can help your money grow. Lending the bank money enables it to turn around and offer loans to other customers, so the bank is paying you a little interest as a thank you.
“A little interest” is all too true for most accounts. But you can find higher rates at online banks; these banks don’t have to support expensive brick-and-mortar branches, enabling them to offer competitive annual percentage yields, or APYs, often well above 1%. These accounts tend to have low initial deposit requirements and typically don’t charge monthly maintenance fees.