Savings account

A savings account is where money waits. The balance is yours to withdraw whenever you want it, but nothing is meant to be paid from it directly, usually no debit card, no checks and no automatic payments, so getting at the money means a transfer to checking first, and that one step is most of the account's value. Interest accrues on the balance every day it stays there, at a rate quoted as an APY so that accounts can be compared on one number, and at most banks it is paid into the balance once a month. The balance cannot fall on its own; the rate can change, and the bank sets it.

In a sentence

• "The emergency fund lives in a savings account at a different bank, so it takes a day to reach and never gets spent by accident."
• "At 4.00% APY, the $8,000 in the savings account earns about $26 in the first month without anyone doing anything."
• "A savings account earns interest and a checking account pays the bills. Give the two jobs two accounts."

How it works

1. Money goes in by transfer, from checking on payday, by direct deposit of part of a paycheck, or by depositing a check.
2. Interest accrues daily and is credited monthly at most banks. The rate is stated as an APY, the annual percentage yield, which includes the compounding, so a balance left alone for a year grows by the balance times the APY.
3. Money comes out by transfer to checking, or at an ATM where the bank issues a card for the account. Some banks limit withdrawals or transfers out in a month, or charge a fee past a certain number.
4. The bank can change the rate at any time, up or down. The balance is insured against the bank failing up to the standard federal limit.

Interest for a year = balance × APY, for a balance left alone

Two accounts paying the example's rates of 0.50% and 4.00% APY earn $40 and $320 a year on the same $8,000, which is why the APY is the number to compare before choosing where a balance sits. The account comes in four common forms.

An example

An emergency fund of $8,000, with $400 added on the 1st of each month, in a savings account paying a 4.00% APY, the example's assumption, with interest credited at the end of each month.

After a year the account holds $13,223, of which $4,800 came from the transfers and $423 from interest. The same $8,000 left alone would have earned $320; the other $103 is interest on the deposits as they arrived. The transfers did most of the work, which is the usual shape: the account's job is to hold the money apart, and the interest is the reward for leaving it there.

Why it matters

Money that stays in checking reads as available and gets spent, slowly and without a decision, which is how an emergency fund stays at January's balance all year. A savings account makes saving a movement instead of a leftover: the transfer on payday takes the money out of the balance the month spends from, and the account's balance is the fund, visible and growing. The interest is second to the separation for most balances, but at the example's two rates the choice of account is worth $280 a year on the fund above. The account also rules out the opposite mistake, an emergency fund in an investment that can be down on the day it is needed.

Savings account versus checking account

A savings account is for money that stays and earns interest; a checking account is for money that moves through the month. Checking pays the bills, carries the debit card, puts no limit on transactions and pays little or no interest; savings pays interest, has no card or checks at most banks, and may limit withdrawals. One account cannot do both jobs well, because the money for later reads as money for now the moment it shares a balance with the rent.

Common questions

Is a savings account the same as a high-yield savings account? It is the same kind of account. A high-yield savings account is a savings account that pays a much higher rate, usually at an online bank, with the same insurance and the same access by transfer. See High-yield savings account.

How many withdrawals can I make from a savings account? It depends on the bank. Some banks limit the number of withdrawals or transfers out in a month or charge a fee past a certain number, and others set no limit; the account's terms say which. The transfer to checking is the intended route out either way.

What is a good savings account rate? Rates move with the wider interest rate environment and differ widely between banks, so the useful comparison is between accounts on the same day rather than against a fixed number. Compare the APY, which includes compounding, and check for fees and minimum balances that would eat the interest.

Should the emergency fund be in a savings account? Yes. The fund has to be reachable within a day and worth its face value on the day it is needed, which rules out investments, and it has to be away from the spending balance, which rules out checking. A savings account is the one place that satisfies both. See Emergency fund.

Go deeper

• How to build an emergency fund inside a monthly budget makes the transfer to savings a fixed line in the budget and sizes the first target at one month of essentials.
• The Savings goal calculator works out what to set aside each month to reach a goal by a date, or how long a goal takes at the amount you can save now, with the account's interest counted along the way.
• How to budget for several savings goals at once keeps several goals in one savings account with a list of what each balance covers, funded in priority order.

Where it shows up in Zypper

Zypper connects savings accounts, including money market accounts and CDs, alongside checking. When money moves from checking to savings, both sides show up as transactions and Zypper links them automatically as one transfer, not income and spending, so the transfer on payday never distorts your cash flow, and the savings balance counts toward net worth and is charted over time. See Supported account types and Splitting and linking transactions for the details, or get started with Zypper to watch the balance grow.