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10 Key Benefits of Opening a Savings Account

Benefits of a Savings Account
Kim Franke-Folstad
Kim Franke-FolstadUpdated January 27, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
If you typically spend most or all of what you earn, you may not see the point of opening a savings account. However, having a savings account has numerous advantages, with very few disadvantages. Here’s a look at some of the key ways you can benefit from opening a savings account – even if you don’t have a lot of extra cash to stash away.

What Is a Savings Account?

A savings account is a deposit account held at a bank or other financial institution. These accounts are designed for holding money that isn’t earmarked for day-to-day use, like spending and paying bills (that’s what checking accounts are for). Savings accounts pay interest to help your money grow, and can be ideal for short-term savings goals, like building an emergency fund, paying for a vacation, or making a down payment for a home.You can open a savings account at a brick-and-mortar bank or credit union or an online-only bank. The annual percentage yield (APY) can vary significantly depending on the bank and the type of savings account, so it can be useful to shop around and compare saving account rates to make sure you’re getting the best possible return on your savings.

Types of Savings Accounts

Before you open a savings account, it’s important to understand that there is more than one type of savings account. Here’s a look at some of the most common options.  
  • Traditional savings accounts These accounts are offered by banks and credit unions with traditional brick-and-mortar locations. Customers may be able to manage their accounts online, with a mobile app, or by phone – but the branch is also there if you want to make a transaction with a teller or discuss your account in person. Interest rates on traditional savings account are generally low, 
  • High-yield savings accounts If you’re looking to maximize the growth in your account with a more competitive APY, you may want to consider a high-yield savings account. These accounts are often offered by online-only banks, which means you won’t get any face time with a teller or manager as would with a traditional bank or credit union. But you’ll likely find higher APRs, lower fees, and lower minimum balance requirements
  • Specialty savings accounts These accounts are designed for specific people and/or specific savings goals. For example, you can find savings accounts set up specifically to help young children, teens, and college students learn about managing money. You can also open an account set up for saving for college, such as a 529 account. 
  •  Money market savings accounts This type of savings account offers some of the features of a checking account, making it a type of hybrid account. Your deposits earn interest, plus you may receive checks and a debit card. Money market savings accounts typically offer a higher APY than traditional savings accounts, but will typically require you to maintain a higher minimum balance.
  • Certificates of deposit A certificate of deposit (CD) offers a different way to save. They usually provide a higher APY than a traditional savings account, but with less accessibility. With a CD, you agree to leave your money untouched for a set period of time (such as six months or a year). During that time your money earns a guaranteed APY. When the CD “matures,” you can take the money or roll it into a new CD. If you withdraw the money before the CD’s maturation date, however, you may have to pay a penalty.  
Recommended: How Much Does the Average American Have in Savings?

What Are the Benefits of a Savings Account?

So, why would you bother opening a savings account rather than keep your extra cash in your checking account or simply in a secret drawer? Are savings accounts worth it? Let’s look at 10 benefits you can get from a savings account.

1. You Can Keep Your Savings Separate

It might be convenient to store all your cash in your checking account. But having two different bank accounts allows you to separate your everyday spending money from money you don’t need right away. A savings account can be a great place to store cash you’ve set aside for emergencies or to save up for something you want to do or buy in the next few months or years. Typically, you can link your savings and checking accounts (even if they are at two different institutions), making it easy to transfer money between the two accounts either online or with an app.

2. The Money Is Insured

Unlike the money you might put into stocks, bonds, and other investments, the funds in a savings account are insured by either the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA). This means that you can’t lose your money (up to $250,000 per depositor, per ownership category, per bank) even if the bank or credit union were to go out of business. This insurance is one of the top advantages of savings accounts.

3. Your Money Is Accessible

The money in your savings account is available when you need it – which is why it can be an effective home for your emergency fund. If you need money fast, you won’t have to sell an asset first (such as stocks, a collection, or real estate), which could take days, weeks, or even months. Keep in mind, though, that savings accounts typically have some restrictions on how often you can make withdrawals or transfers. While federal rules restricting savings account owners to six withdrawals per month have been suspended, banks and credit unions can still cap the number of withdrawals or transfers you’re allowed to make and charge fees if you exceed the max.

4. Your Money Earns Money

While the interest you can earn on a savings account is relatively low, these accounts allow you to earn money just by letting your money sit in the bank. That’s better than letting your cash sit in a non-interest-bearing checking account (or that secret drawer). You also benefit from compound interest – which is when you earn interest on your deposits plus any interest you’ve previously accumulated. If you're hoping to grow your money faster, shopping for a savings account with a competitive APY will likely be your top priority. The APY includes the interest rate plus the effects of compounding during the year, which enables you to compare savings accounts apples to apples.

5. You Can Put Savings on Auto Pilot

If you’re determined to meet certain financial goals, you can set up automatic transfers from your checking into your savings each month (perhaps on the day you get paid). This can help eliminate roadblocks to saving money like temptation and procrastination. You may also be able to make savings automatic by asking your HR department to directly deposit a portion of your paycheck into your savings account. It’s fine to start small – even a minimal monthly deposit can add up to significant savings over time.

6. Some Banks Offer Incentives for Savers

Some banks offer cash bonuses and other incentives to customers who sign up for direct deposits or those who meet a certain minimum deposit requirement when opening an account. Though a high APY is typically the top concern when you’re comparing savings accounts online, it may make sense to look at the other perks financial institutions are offering as well.

7. Less Temptation to Withdraw

While having easy access to savings is important, especially in emergency situations, a key benefit of savings accounts is that you typically won't have a debit card to make transactions. As a result, you'll be less inclined to use your savings for an impulse purchase and your reserves can remain intact. The monthly limit of withdrawals that many banks impose on savings accounts can also work in your favor if you’re looking to spend less and save more.

8. A Joint Account Can Help Couples Save Together

Opening a joint savings account with your spouse or partner can make it easier to work together toward mutual financial goals. In addition, sharing one account with a larger balance could help cut down on the fees your bank might charge and could also help you earn a higher APY. Another perk: With two names on the account, you’ll get up to $500,000 in FDIC protection. 

9. Can Help You Teach Your Kids to Save

Opening a joint or custodial savings account for a child can be a good way to start teaching them the value of saving, as well as how to set financial goals and then budget for those goals. Many banks offer accounts specifically geared to young children, teens, and college students. 

10. You Don’t Need a Ton of Cash to Get Started

It doesn’t take much money to open a savings account. Although many financial institutions have a minimum opening deposit requirement, it’s usually only around $25. And, online banks often have a $0 minimum deposit – so you don’t have to save up to start saving. You may need a larger deposit, however, to qualify for the highest APYs. Recommended: A Guide to Passbook Savings Accounts

What to Look for In a Savings Account

If you already have a checking account, you might assume that the best place to open a savings account is at the same institution. But that’s not necessarily the case. It can be worth your while to shop around and compare rates, fees, and other features to find the best fit for your needs. As you compare accounts, here are some things to keep an eye out for: 
  • A competitive APY
  • FDIC or NCUA coverage
  • Low or no monthly fees
  • 24/7 accessibility with fee-free ATMs
  • Low or no minimum balance requirement
  • An initial deposit requirement you an afford
  • Online banking and/or a mobile banking app
  • Additional perks

How to Apply for a Savings Account

Once you’ve found a financial institution and account that suits you, it’s typically fast and easy to open a savings account. You can generally open a bank account online or (if the bank has physical branches) in person. Either way, you should be prepared to provide some personal information and documentation, including your: 
  • Driver’s license or some other government-issued identification (such as a passport)
  • Social Security number
  • Date of birth
  • Current address (and proof that it’s your address if it differs from your ID)
  • Contact information (phone and email)
  • Checking account information (if you’re using your checking account to fund your savings account or linking the two accounts)
  • Designated beneficiary (if it’s an individual account)
Once you open the account, there are usually a few different ways you can add funds. If you’re at the bank in person, you can use cash or a check. If you’re applying online, you can transfer funds from a linked account or you may be able to make a mobile check deposit.  Finally, if you haven’t already, you can set up a login name and a secure password so you can access your account online or via the bank’s mobile app.

The Takeaway

Whether you’re just getting started or have been saving for some time, a savings account can be a useful financial tool. If you leave the money in your account alone, it can grow a little bit over time, thanks to the power of compounding interest. When you’re ready to spend your savings, you can quickly access your funds in person or online. This can make a savings account a great place to keep an emergency fund or to save for short-term goals.If you’re not sure where to start your savings account search, Lantern by SoF can help. With our online banking marketplace, it’s fast and easy to compare high-yield savings accounts based on APY, fees, and balance minimums. Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

What factors should I consider when opening a savings account?
Is it possible to close a savings account?
How much interest do savings accounts offer?
Are the funds in my savings account insured?
Photo credit: iStock/warat42

About the Author

Kim Franke-Folstad

Kim Franke-Folstad

Kim Franke-Folstad is an award-winning journalist with 30 years of experience writing and editing for newspapers, magazines and websites. Her work for SoFi covers a range of topics related to personal finance, including budgeting, saving, borrowing, and investing.
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