What a savings account does and how to start using it

A savings account is a bank account where you deposit money, earn a small amount of interest on it, and can withdraw it when you need it. You use it by opening an account at a bank or credit union, putting money in through deposits, and then taking money out when you want to spend it or move it elsewhere. The bank pays you interest — a percentage of your balance — as a reward for keeping your money there instead of under a mattress.

To start using one, you walk into a bank branch or go to their website, fill out an account opening form with your name and address, show an ID, and make an initial deposit. Some banks require a minimum opening deposit (often $25 to $100, though some have no minimum). Once the account is open, you can add money and remove money whenever you want, though there are limits on how many withdrawals you can make per month without a fee.

The main reason to use a savings account instead of keeping cash is that your money earns interest. If you have $1,000 in a savings account earning 4% annual interest, you earn about $40 per year just by leaving the money there. A regular checking account usually earns no interest at all.

Key Takeaways

  • You deposit money into a savings account, the bank pays you interest on your balance, and you can withdraw it whenever you need it.
  • Opening an account requires an ID, a starting deposit (usually $25 to $100), and takes about 15 minutes in person or online.
  • Interest rates vary by bank and change monthly, so comparing rates before opening an account can mean hundreds of dollars more over a year.
  • Most savings accounts limit you to six withdrawals per month without charging a fee, so use it for money you do not plan to touch often.
  • You can link your savings account to a checking account to move money between them quickly when you need cash.

How to deposit money into your savings account

Deposits are the easiest part. You can put money in through several methods: walking into a branch and handing cash or a check to a teller, using an ATM (if your bank has one), setting up direct deposit from your employer, or transferring money from another bank account online.

Direct deposit is the fastest and most hands-off method. You give your employer or the organization sending you money (like Social Security or a pension) your bank's routing number and your account number, and the money lands in your account automatically on payday. You can find your routing number and account number on the bottom left of any check, or by logging into your online banking and looking at account details.

If you want to deposit a check without going to the branch, most banks now let you photograph the front and back of the check using their mobile app and submit it. The money usually shows up in one to two business days. For cash deposits, you will need to use an ATM or visit a branch in person.

How to withdraw money and understand withdrawal limits

You can take money out of a savings account through an ATM, by visiting a branch and asking a teller, or by transferring it to your checking account online. ATM withdrawals are instant, and branch withdrawals take a few minutes. Online transfers to your own checking account usually complete within one business day.

Here is the catch: most savings accounts limit you to six withdrawals per month without charging a fee. This limit exists because of an old federal rule, though it has loosened in recent years and some banks no longer enforce it. If you exceed six withdrawals in a month, the bank may charge you $5 to $10 per extra withdrawal, or they may close your account if you repeatedly go over the limit.

This is why a savings account works best for money you do not plan to touch often. If you need to withdraw money multiple times a week, a checking account is the better choice — checking accounts have no withdrawal limits. Many people use both: a checking account for everyday spending and a savings account for money they want to set aside and earn interest on.

Interest rates and how much your money will earn

The interest rate on a savings account is the percentage of your balance the bank pays you each year. Rates change constantly and vary widely between banks. As of early 2024, rates range from nearly 0% at some large national banks to 4% to 5% at online banks and credit unions. A $5,000 balance earning 0.01% per year earns about 50 cents. The same $5,000 at 4.5% earns about $225 per year.

Interest is usually calculated daily and paid monthly. That means the bank looks at your balance every day, adds up all those daily balances for the month, and then pays you interest on the average. If you have $1,000 in the account for the whole month, you earn interest on $1,000. If you have $1,000 for half the month and $2,000 for the other half, you earn interest on $1,500.

Before opening a savings account, compare rates at several banks. The difference between a 0.5% account and a 4.5% account is real money over time. Online banks and credit unions almost always offer higher rates than large national banks because they have lower overhead costs. You can check current rates on comparison websites or by visiting bank websites directly.

Linking your savings account to a checking account

Most people link their savings and checking accounts at the same bank so they can move money between them quickly. Once linked, you can transfer money from savings to checking online in seconds, or from checking to savings in one business day. This makes it easy to move money when you need cash without visiting a branch.

To link accounts, log into your online banking, find the transfer or move money section, and select both accounts. The bank will verify you own both accounts (usually by asking security questions or sending a code to your phone) and then the link is active. You can then set up automatic transfers — for example, moving $50 from checking to savings every payday — or make one-time transfers whenever you want.

If your savings and checking accounts are at different banks, linking takes longer. You will need to provide the other bank's routing number and your account number, and the bank will send two small deposits (usually under $1 each) to verify you own the account. Once verified, transfers between banks take one to three business days.

Fees to watch for and how to avoid them

Savings accounts charge fees for specific actions. The most common are monthly maintenance fees ($5 to $10 per month), excess withdrawal fees ($5 to $10 per withdrawal over the limit), overdraft fees (if you accidentally withdraw more than you have), and ATM fees (if you use an ATM outside your bank's network).

You can avoid most of these by choosing the right account. Many banks waive monthly fees if you keep a minimum balance (often $500 to $2,500) or set up direct deposit. Online banks almost never charge monthly fees. To avoid excess withdrawal fees, simply do not withdraw more than six times per month, or choose a bank that does not enforce the limit. To avoid ATM fees, use ATMs owned by your bank or a network your bank belongs to (most banks belong to a shared ATM network).

Read the fee schedule before opening an account. Banks are required to provide this document, and it lists every fee the bank charges. If the fee schedule is long and complicated, that is a sign the bank charges a lot of fees — consider a different bank.

How to track your balance and monitor your account

You can check your balance anytime through online banking, a mobile app, an ATM, or by calling the bank's customer service number. Most people check through the app or website, which updates instantly. ATMs and phone lines update every few minutes to an hour.

Set up account alerts so the bank notifies you by text or email when your balance drops below a certain amount, when a large deposit or withdrawal happens, or when a fee is charged. These alerts help you catch fraud early and avoid overdrafts. You can usually set up alerts in the settings section of your online banking or mobile app.

Review your account statement once a month. The statement shows every deposit and withdrawal, the interest you earned, and any fees charged. Look for transactions you do not recognize, which could mean someone has fraudulently accessed your account. If you spot fraud, contact the bank immediately — they have a legal obligation to investigate and usually refund fraudulent charges within 10 business days.

Frequently Asked Questions

Can I withdraw money from a savings account anytime I want?

Yes, you can withdraw anytime, but most accounts limit you to six withdrawals per month without a fee. If you need to withdraw more often, use a checking account instead, or choose a savings account that does not enforce withdrawal limits (some online banks have removed this restriction).

How much interest will I actually earn?

It depends on the interest rate and your balance. A $1,000 balance at 4% earns about $40 per year. A $10,000 balance at 4% earns about $400 per year. Interest is paid monthly, so you earn a small amount each month. Higher rates and larger balances earn more.

What happens if I close my savings account?

You can close an account anytime by visiting a branch or calling the bank. The bank will send you any remaining balance by check or transfer it to another account. There is usually no fee to close an account. Make sure you have withdrawn or transferred all your money first.

Is my money safe in a savings account?

Yes, if the bank is FDIC-insured (most banks are). The FDIC guarantees that if the bank fails, you will get back up to $250,000 of your deposits. Credit unions have similar protection through the NCUA. Check your bank's website to confirm it has this protection.

Should I keep money in savings or checking?

Use checking for money you spend regularly and need quick access to. Use savings for money you want to set aside and earn interest on. Many people keep one to three months of expenses in savings as an emergency fund and the rest in checking for bills and everyday spending.