A savings account is worth opening if you have money sitting in checking that you're not spending month to month, or if you need a safe place to hold money for a goal three months to five years away.

The main reason to open one is the interest rate. A checking account typically pays zero percent interest; a savings account at an online bank pays between 4 and 5 percent right now, which means your money grows without you doing anything. On $5,000, that's $200 to $250 per year. On $20,000, it's $800 to $1,000 per year. The rate changes with the Federal Reserve, so it won't stay this high forever, but it's always higher than checking.

The second reason is separation. Money in a separate account is harder to spend by accident. If you keep your emergency fund or your car-repair fund in the same account as your daily spending money, you're more likely to dip into it when you're short on cash. A savings account at a different bank makes that friction intentional—you have to move money back, which takes a day or two, and that pause often stops you from spending it.

You should not open a savings account if you have credit card debt charging you 15 to 25 percent interest. Pay that down first. The interest you earn on savings (4 to 5 percent) is far smaller than the interest you're paying on the card. After the credit card is gone, then open the savings account.

Key Takeaways

  • Online savings accounts currently pay 4 to 5 percent interest, which means $5,000 grows by $200 to $250 per year without any work on your part.
  • Keeping savings in a separate account from checking makes it harder to spend the money by accident when you're short on cash.
  • If you carry credit card debt at 15 to 25 percent interest, paying that down first saves you more money than the interest a savings account will earn.
  • Most online banks have no monthly fees and no minimum balance, so there's no cost to opening one and leaving it empty until you have money to deposit.
  • Savings accounts are FDIC-insured up to $250,000, which means your money is protected even if the bank fails.

How much money should you have before opening one

You don't need a minimum amount. Some people open a savings account with $50 and add to it over time. Others wait until they have $1,000 or $5,000. The only practical reason to wait is if you're still paying off debt—in that case, every dollar should go to the credit card first.

If you have money in checking that you know you won't spend for at least three months, that's the signal to move it to savings. Three months is the threshold because the interest rate advantage starts to matter, and you're unlikely to need the money so soon that you'll regret locking it away.

The difference between a savings account and a money market account

A money market account is a hybrid: it works like a savings account (earns interest, FDIC-insured) but also lets you write checks or use a debit card, like a checking account. The trade-off is that money market accounts usually pay slightly less interest than savings accounts, and many have higher minimum balances or monthly fees.

For most people, a regular savings account is simpler. You use it only for saving, not for spending, so you don't need the checking features. If you want the ability to access your money quickly without moving it back to checking, a money market account makes sense—but read the fine print on fees and minimum balance before you open one.

Online banks versus traditional banks

Online banks (like Ally, Marcus, or Discover) pay higher interest rates than traditional banks because they have lower overhead—no physical branches to maintain. Right now, online banks pay 4 to 5 percent; traditional banks often pay 0.01 to 0.05 percent. That difference compounds over time.

The downside of online banks is that you can't walk into a branch and deposit cash or talk to someone in person. If you need to deposit cash regularly, a traditional bank or a credit union may be worth the lower interest rate. If you deposit by check (mobile deposit through an app) or by transfer, an online bank is almost always the better choice financially.

Both online and traditional banks are FDIC-insured, so your money is equally safe either way. The choice comes down to whether you need in-person service and whether the interest rate difference matters to you.

What happens to your savings account if you don't use it

Nothing. A savings account doesn't expire or close just because you stop adding money to it. The interest keeps accruing as long as there's money in the account. Some banks charge a monthly fee if the balance falls below a certain amount, but most online banks have no minimum balance and no monthly fee, so you can leave money there indefinitely.

If you don't touch the account for several years, the bank may mark it as dormant and eventually turn the money over to the state as unclaimed property. This is rare and takes years, but it's worth knowing: if you open a savings account and then forget about it for five or more years, check your state's unclaimed property database to make sure the money is still there. You can reclaim it if it's been turned over.

Opening a savings account when you have bad credit or a banking history issue

Most online banks and traditional banks use ChexSystems, a checking account history database, to decide whether to open an account for you. If you have unpaid overdrafts, bounced checks, or fraud on your record, you may be denied. If that happens, look for a bank that doesn't use ChexSystems or that specializes in second-chance banking—credit unions often have more flexible policies than large banks.

Having bad credit does not automatically disqualify you from opening a savings account. Savings accounts don't require a credit check; they only require the ChexSystems check. If you've been denied, ask the bank why, because the reason determines your next step. If it's a ChexSystems issue, a second-chance bank is your route. If it's something else, the bank should tell you what to fix.

How to move money into and out of a savings account

Most transfers happen electronically. You can set up an automatic transfer from your checking account to savings on the same day each week or month—many people do this right after payday so the money moves before they spend it. You can also transfer money manually through your bank's app or website whenever you want.

Withdrawals work the same way: you can transfer money back to checking, and it usually arrives within one business day. Some banks let you withdraw cash at ATMs, but not all—check before you open the account if you think you'll need to withdraw cash regularly. If you do, a traditional bank or credit union with ATM access may be more convenient than an online bank.

Frequently Asked Questions

Can I have more than one savings account?

Yes. Some people open multiple savings accounts to separate money by goal—one for emergencies, one for a car, one for a vacation. Each account earns interest, and the FDIC insurance covers up to $250,000 per account per bank. If you have $300,000 in savings, you could put $250,000 in one account and $50,000 in another at the same bank and both would be fully insured.

What if I need the money before three months?

You can withdraw it anytime. There's no penalty for taking money out of a savings account early, unlike a certificate of deposit. The only cost is that you lose the interest you would have earned. If you think you might need the money within three months, keep it in checking instead.

Do I pay taxes on the interest I earn?

Yes. The interest is taxable income. If you earn $50 or more in interest in a year, the bank will send you a 1099-INT form, and you'll report it on your tax return. The amount is usually small, but it's still taxable.

Is my money safe in a savings account if the bank fails?

Yes. The FDIC (Federal Deposit Insurance Corporation) insures savings accounts up to $250,000 per depositor per bank. If the bank fails, the FDIC pays you back. This protection is automatic—you don't have to do anything.

Can I use a savings account as an emergency fund?

Yes, and it's one of the best uses for one. An emergency fund should be money you can access quickly without penalty, and a savings account fits that perfectly. Most people keep three to six months of expenses in a savings account for emergencies, then invest additional savings elsewhere.