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Financial Education

Saving Money and Savings Accounts

Learn why saving matters, the main types of savings accounts, and how deposit insurance protects your money.

Why saving is important

People save money for many reasons:

  • Unexpected costs, like car repairs, medical bills, or losing a job
  • Short-term goals, like a vacation or a down payment on a car
  • Long-term goals, like a home, education, or retirement

Without savings, a surprise cost has to be paid another way. Many people turn to credit cards or loans. That borrowing can be hard to pay off later.

Types of savings accounts

Banks and credit unions offer several types of savings accounts. They differ in three main ways:

  • How much interest they pay
  • How easily you can take out your money
  • Whether they charge fees or require a minimum balance

Traditional savings accounts

This is the most common type. Most banks and credit unions offer them.

  • You can open one in a branch or online.
  • You can add or take out money at any time.
  • It pays a small amount of interest.

The interest is often shown as an annual percentage yield (APY). A higher APY means you earn more.

High-yield savings accounts

A high-yield savings account usually pays more interest than a traditional one. In return, it may require a larger deposit or balance.

Before you open one, know these things:

  • The interest rate can change. The bank can raise or lower it at any time.
  • Some high rates are short-term offers. Others only apply above a certain balance.
  • Some of these accounts are online only. There may be no local branch.

Money market accounts

A money market account (MMA) combines features of checking and savings accounts.

  • It pays interest, often more than a traditional savings account.
  • It may come with a debit card or checks.
  • There may be a monthly limit on checks, transfers, or debit purchases.
  • It usually requires a higher minimum balance.

The interest rate can go up or down over time.

Certificates of deposit (CDs)

A CD holds your money for a set time. This is called the term. Terms can be six months, one year, five years, or longer.

  • The bank pays you interest while your money stays in
  • Longer terms usually pay higher rates
  • You usually cannot add money during the term
  • Your money is locked in. Taking it out early usually means paying a penalty.

The date your term ends is called the maturity date. At that point, you can take out your money plus interest. Or you can move it into a new CD.

Deposit insurance

Your money in a savings account is insured up to $250,000 if:

  • Your bank is insured by the FDIC, or
  • Your credit union is insured by the NCUA

If an insured bank or credit union fails, your covered money is protected. Not sure if your account is insured? Ask your bank or credit union, or use the links below.

Tools to build savings

These tools can help you save without thinking about it:

  • Automatic transfers. Your bank moves a set amount from checking to savings on a schedule you choose.
  • Direct deposit. Part of your paycheck goes straight into savings before you see it. Ask your employer or bank if this is offered.
  • Round-up features. Some banks and apps round up your purchases and save the extra change for you.

Where to learn more