A savings account is where you keep money for future goals. Your savings are less liquid, and it’s where you keep money for more extended periods of time. You may even use your savings account as a rainy day or emergency fund.
There are different types of savings accounts, including traditional savings and high-yield savings accounts (HYSA). An HYSA is like a traditional account but offers a higher interest rate which can help you to grow your savings faster.
Savings account pros
Savings accounts with FDIC insurance provide a safe place to save your money. They also help you stay accountable by keeping money separate that you’re not willing to spend. This is useful when saving up for a big purchase like a car, home, or vacation.
Plus, you can earn some interest with savings accounts (more than you would in an interest-earning checking account).
In summary, the pros are:
- Typically has a higher interest rate than a checking account
- Allows you to build long-term savings
- May come with extra benefits like automatic savings
- Keeps money separate that you’re not willing to spend
Savings account cons
While many checking accounts offer unlimited transactions, savings accounts often have limits. However, the FDIC announced in April 2020 that it would no longer require financial institutions to enforce the limit of six monthly withdrawals.2
You also typically won’t earn as much in interest as you would using other investment or savings tools, such as a 401(k), IRA, certificate of deposit (CD), or money market account. According to the FDIC, the average interest rate for savings accounts currently stands at 0.39% APY as of April 2023.1 However, other savings tools may come with penalties.
In summary, the cons are:
- Monthly withdrawal limits often apply
- Investment accounts, money market accounts, and CDs usually offer higher interest rates
- Not ideal for everyday spending
