What is a Savings Account: Everything You Need to Know

Triston Martin Updated on Jun 18, 2022

A saving (or deposit) account is an account you can use to keep your money safe and earn interest. These accounts work because you have a balance, which you can use to make payments or withdrawals, and the bank pays you interest on your balance. The difference between a savings account and other bank accounts is that there are rules regarding how much money you can withdraw over a specific time. That means that you need to plan if you want to withdraw all your money.

The main reason why someone would open a savings account are:

You need a secure place to keep the money you do not plan to spend any time soon. You plan on saving money for something in the future, such as paying for education or buying a house.

For example, if you have $1000 to buy something but only want to pay for it with $500 of your own money, you could just put the $500 into a savings account and let it sit until you are ready to spend your $1000.

Each bank or savings institution has rules about how much money you can have in your savings account. In general:

Unless you are above 18, you are not entitled to receive interest on money that you have in a Savings Account, which means that it is harder to earn interest if they don't allow withdrawals.

Types of Savings Account

There are two savings accounts most people use: Regular Savings Accounts and Specialist Savings Accounts (aka Specialised Term Deposits). They vary in rates and charges.

Regular Savings Account

A regular savings account is a kind of bank account. Like other bank accounts, you can use it to make payments and many withdrawals.

The main difference with a regular savings account is that there are limits on how much money you can withdraw and how often you can make these withdrawals. If your goal is to get money out as quickly as possible, a Regular Savings Account would not be suitable for you because the bank charges fees each time you withdraw or make a payment.

Specialist Savings Account (a.k.a Specialised Term Deposit)

This account allows the account holder to add money on a one-off basis and then withdraw (and/or transfer) money in chunks of specific sizes over time. This means that, unlike with a regular savings account, you can plan your future finances more quickly if you know how much money you want and when to take it out.

There are two types of Specialist Savings Accounts: one where you can make payments or withdrawals in any amount and one that allows small deposits only.

One bank account with many restrictions. If you have funds in your savings account but cannot make payments or withdrawals for several years. You must find another way to keep your money safe as interest rates drop. Renting a property is one way to do this so long as it does not cost more than a deposit on a home loan; paying off the mortgage over time will make your money grow to the same amount while earning the same interest out the difference. Another way is investing in a property instead of renting, which requires much more patience but can provide higher returns.

Some banks offer a Cash Management Account to clients. This allows you to transfer money between your savings account and another account. Banks often charge extra fees if you make numerous monthly payments or transfers, so check with your bank before opening an account to find out more about their charges.

What banks offer savings accounts?

Savings accounts are available in almost every country in the world. Most countries have their own national bank that offers basic savings accounts. Some of these banks also have credit cards and other financial services.

There are also many online banking or "electronic money" institutions and foreign banks offering financial products that customers can use through the internet. Online-only institutions may not provide all the products of traditional banks. Still, they may give you more of a competitive advantage regarding savings account interest.

What is the difference between a checking and savings account?

Checking accounts are used to pay bills and make small cash deposits at an institution's teller window (or ATM). The main advantage of a checking account is that you can use your debit card or online banking to pay your bills. And thanks to the Electronic Funds Transfer Act and Regulation E, you'll never have to worry about not having enough money in your account to make it through a month.

A savings account is for the money you don't need to use often. You can only make six withdrawals per month from savings without triggering an overdraft fee, and some accounts don't let you write checks. If a savings account doesn't charge fees for withdrawals or deposits, it can help you keep track of your expenditures better than a checking account because there are no limits on the number of deposits or ATM withdrawals.

However, overdraft fees are also associated with saving too little in your checking account. That's why the Federal Reserve Board requires banks to give account holders a free "overdraft protection transfer" — money from savings to checking — if they make too many purchases without having enough money in their checking accounts. If you don't want to deal with overdraft fees, you might want to consider keeping your savings in an account with different privileges than your checking account.