How Does a Savings Account Work?
Automatic deposits to your savings account can help you reach your financial goals.
A savings account can help you achieve your long-term financial goals, such as taking a vacation or saving for a down payment on a house. A savings account can be a safe place to put aside funds so you aren’t tempted to spend them in the short term.
There are, however, different types of savings accounts, so it’s important to choose the one that is right for you.
What Is a Savings Account?
A savings account is a type of bank account in which you can put aside money and the bank will pay you interest for keeping it there. With most savings accounts, you can access your funds at any time, depositing and withdrawing money at a bank branch or transferring money in and out of your account through online dashboards or apps such as Fifth Third’s mobile banking app. However, some savings accounts may limit the number of monthly withdrawals you can make without paying a fee.
By linking your savings account to your checking account, you can make the process of saving toward your financial goals almost effortless. You can, for example, set up automatic deposits using Smart Savings on Fifth Third’s mobile banking app to automatically transfer money to your savings account from your checking account after your paycheck is deposited.
Further, savings accounts are FDIC insured by the U.S. government up to $250,000 per account.
Types of Savings Accounts
Consider a traditional savings account if you are looking for a straightforward way to maximize your savings. It also can help establish a relationship with a bank that offers a wide array of services, such as mortgages, car loans, and credit cards. These accounts typically don’t require you to maintain a minimum balance, but they pay the lowest annual percentage yield (APY), or interest rate, among savings accounts. You often can earn a slightly higher interest rate if you also have a linked checking account at that bank.
Fifth Third also has a large ATM network, so you can make deposits—including cash—or withdrawals at one of its 50,000 fee-free ATMs.1 If you need an emergency infusion of cash, for example, you could transfer money from your savings account to your checking account using your Fifth Third mobile app2 and then withdraw the money from an ATM.
Banks also offer high-yield savings accounts, which pay a higher interest rate, but are very low risk options. High-yield savings accounts are a great place to store an emergency fund or savings you might need to access in the near future.
A money market deposit account pays some of the best interest rates for a savings account, but it also usually has minimum deposit and balance requirements. These accounts come with debit cards and checks, but they typically limit the number of monthly debit card purchases, check withdrawals, and electronic transfers.
Certificates of deposit (CDs) pay the highest interest rates, offering continuous compound interest, meaning your accruing interest also earns interest in the future. But you’ll have to commit to keeping your money in the CD for a fixed period of time. When you cash in a CD after it matures, you receive your original deposit plus the interest. If you withdraw the money early, you might have to pay a penalty.
Choosing the Best Savings Account for You
Here are some important questions to ask when choosing a savings account:
- Is there an initial deposit requirement?
- Are there monthly limits on withdrawals?
- Do I have to maintain a minimum balance?
- Are there maintenance fees?
- Can I make transactions through mobile apps?
A savings account can be a great way to start growing your nest egg and help achieve your financial goals. It’s super easy to start saving when you can visualize your goals with an account like the Fifth Third Momentum® Savings Account, where you can set up automatic transfers to your savings goals using Smart Savings. This will help you keep in step with your budget while setting up an emergency fund and accomplishing your future financial objectives.
Looking to open a savings account? Find out which savings account is the best option for you.