Start a savings account if you have money you want to keep separate from spending, earn interest on it, or build a financial cushion
A savings account makes sense when you have cash sitting in a checking account that you do not plan to spend soon. Money in savings earns interest — the rate varies by bank and changes monthly, but even a small rate adds up over time. A separate account also creates a psychological barrier: you are less likely to spend money if it takes a day or two to transfer it back to checking.
You do not need a savings account if you have almost no money left over after bills, or if you already have other places to keep emergency funds. But if you receive paychecks, tax refunds, or other lump sums and want to hold onto them rather than spend them, a savings account is the simplest tool.
Key Takeaways
- A savings account earns interest on your balance, though the rate is typically between 0.01% and 5% depending on the bank and current market conditions.
- You will need a government ID, proof of address, and usually a Social Security number or tax ID to open an account at a bank or credit union.
- Online banks often pay higher interest rates than brick-and-mortar banks, but they do not let you deposit cash in person.
- Most savings accounts have no monthly fee, but some charge if your balance drops below a minimum or if you make too many withdrawals in a month.
- Money in a savings account at an FDIC-insured bank is protected up to $250,000 if the bank fails, so your deposits are safe.
How interest rates work and what you will actually earn
Banks pay you interest as a percentage of your balance. A high-yield savings account might pay 4% to 5% annually right now, while a traditional bank savings account might pay 0.01% to 0.05%. The difference is real: on $10,000, you would earn roughly $400 to $500 per year in a high-yield account versus $1 to $5 in a traditional account.
Interest rates change constantly. Banks raise and lower their rates based on what the Federal Reserve does and how much competition they face. When you open an account, the rate you see today may be different in three months. Some banks lock in a rate for a set time; most do not. Read the account details before you open it to see whether the rate is may provide or variable.
Interest compounds, usually daily or monthly. That means you earn interest on your interest. Over years, this adds up, but in the first few months the difference is small. If you are saving for something you need in the next year, the interest is a bonus, not the main reason to open the account.
What you need to bring to open an account
Most banks and credit unions ask for the same documents. Bring a government-issued photo ID — a driver's license, passport, or state ID card. You will also need proof of your current address, which can be a recent utility bill, lease, mortgage statement, or bank statement with your name and address on it. Some banks accept a government check or tax return instead.
You will need a Social Security number or an Individual Taxpayer Identification Number (ITIN). If you do not have either, some banks and credit unions offer accounts for people without an SSN, but they are less common. Call ahead to ask.
If you are opening an account online, you may be able to upload photos of your documents or verify your identity through a video call. If you go to a branch in person, bring the originals. The whole process usually takes 10 to 20 minutes.
Comparing online banks, traditional banks, and credit unions
| Type | Interest Rate | Monthly Fee | How to Deposit Cash | Best For |
|---|---|---|---|---|
| Online bank | 4% to 5% (currently) | Usually none | Transfer from another bank; no in-person deposits | Maximizing interest if you do not need to deposit cash |
| Traditional bank | 0.01% to 0.5% | $0 to $15 per month | Deposit at branch or ATM | Convenience and in-person service |
| Credit union | 0.5% to 3% | Usually none | Deposit at branch or shared ATM network | Lower fees and personal service if you are a member |
Online banks pay the highest interest because they have no physical branches and lower overhead costs. The trade-off is that you cannot walk in to deposit cash. You transfer money from another bank account, or you deposit a check by taking a photo of it with your phone. If you receive cash regularly and need to deposit it, an online bank may not work for you.
Traditional banks let you deposit cash at any branch or ATM, but they pay much lower interest. You pay for the convenience. Some charge monthly fees if your balance falls below a minimum, usually $500 to $2,500.
Credit unions are member-owned and often pay better interest than traditional banks while charging fewer fees. You have to be a member to open an account, which usually means living or working in a certain area, or belonging to a group the credit union serves. Ask whether you are may be able to access before you visit.
Fees to watch for and how to avoid them
Most savings accounts have no monthly maintenance fee. Some charge $5 to $15 per month if your balance drops below a certain amount — often $500 or $1,000. If you are starting small, look for an account with no minimum balance requirement.
Withdrawal limits used to be common, but federal rules changed in 2020. Most banks now let you withdraw money as often as you want. A few still limit you to six withdrawals per month and charge a fee if you exceed that. Check the account terms before you open it.
Overdraft fees apply to checking accounts, not savings accounts, but they matter if you link the two. If your checking account overdrafts, some banks will automatically transfer money from your savings to cover it — and charge you a fee for the transfer. You can usually turn this off in your account settings.
How FDIC insurance protects your money
The Federal Deposit Insurance Corporation (FDIC) insures deposits at member banks. If a bank fails, the FDIC pays you back up to $250,000 per account type per bank. A savings account at Bank A and a checking account at Bank A are separate for insurance purposes, so you are covered up to $250,000 in each.
If you have more than $250,000 to save, you can open accounts at multiple banks to stay fully insured. A savings account at Bank A and a savings account at Bank B are both insured separately. Credit unions have similar protection through the National Credit Union Administration (NCUA).
Check whether a bank is FDIC-insured before you open an account. The FDIC website has a tool to search by bank name. If a bank is not insured, your money is at risk if the bank fails.
When not to open a savings account
Do not open a savings account if you have high-interest debt like credit card balances. The interest you earn on savings (even 5% right now) is less than the interest you are paying on the debt (often 15% to 25%). Pay down the debt first, then save.
Do not open an account if the bank requires a minimum balance you cannot maintain. Some banks require $2,500 or more to open a savings account or to earn the advertised interest rate. If you have $500 to save, find a bank with no minimum.
Do not open an account at a bank that charges monthly fees unless you are certain you will keep the minimum balance. The fees will eat into any interest you earn.
Frequently Asked Questions
Can I open a savings account with no money and add to it later?
Yes. Most banks let you open an account with $0 or $1. You do not have to deposit a large amount upfront. Some online banks require a minimum opening deposit of $25 to $100, so check before you start the process.
How long does it take to transfer money from savings back to checking?
If the accounts are at the same bank, the transfer is usually instant or takes a few hours. If you are transferring between different banks, it typically takes one to three business days. Plan ahead if you need the money quickly.
Will opening a savings account hurt my credit score?
No. Opening a savings account does not affect your credit score. Banks check your banking history, not your credit, and that check does not lower your score. Credit scores only change when you borrow money or miss payments.
What happens to my savings account if I do not use it for a long time?
Nothing, as long as you keep a balance. Your money stays in the account and continues to earn interest. Some banks close accounts that have been inactive for several years with no deposits or withdrawals, but they will contact you first and return your money.
Can I have multiple savings accounts at the same bank?
Yes. Many people open separate savings accounts for different goals — one for emergencies, one for a vacation, one for a car. Each account earns interest separately, and each is insured separately up to $250,000.