Guide to Savings Accounts

What we’ll cover

What is a savings account and how do they work?

Next to piggy banks, a savings account may be the most common place to keep your cash. You can deposit money, earn interest, and make withdrawals. Traditional and high-yield savings accounts typically require a low minimum opening deposit to set up an account.

Once you open an account, you can deposit money as often as you’d like. Many banks offer a recurring deposit or transfer feature that can help you automate your savings.

Savings accounts can offer a great deal of flexibility when it comes to withdrawals too. Generally, you can take out money whenever you want. But be aware that some banks may limit the number of withdrawals you can make each month depending on the type of withdrawal you make. If you’re unsure about your account rules, contact your bank directly for more information.

Are savings accounts safe?

Savings accounts are generally considered a safe, accessible place to keep your cash and earn interest. When shopping for an account, it’s important to look for a FDIC member bank, where deposits are insured up to the maximum allowable by law. Currently, the standard amount is $250,000 per depositor, per FDIC-insured bank, for each account ownership category.

If you’re not sure if a bank is a member of the FDIC, you can use the FDIC’s BankFind tool to look up the financial institution and its membership status.

Because savings accounts typically have low to no risk and are more liquid than investment accounts, they can be a useful place to park your money for short-term goals like an emergency fund or a down payment.

Learn more: What’s the Difference Between Saving and Investing?

Popular types of savings accounts

At Marcus, when we talk about a savings account, we’re generally referring to our Online Savings Account. However, there are other types of deposit products that could help you save and earn interest. Knowing how these different products work can help you put together a savings plan that makes sense for your goals.

Here are a few types of savings products that banks and credit unions commonly offer.

Traditional and high-yield savings accounts

You can find these accounts at brick-and-mortar banks, online banks, and credit unions. These accounts allow you to deposit money on a regular basis and withdraw funds relatively easily. High-yield savings accounts could offer higher APYs than traditional savings accounts.

• How it works: You can add money as often as you’d like and earn interest.
• Minimum balance: It depends on the bank, but the minimum requirement tends to be low.
• Withdrawals: Withdrawals may be limited to 6 per month, depending on your bank and the type of withdrawal you make.
• Interest rates: Savings accounts have variable rates, so they can go up or down.
• Things to look out for: APY, compounding frequency, fees

Types of savings accounts

Open a savings account to support your goals

If you’re trying to decide which type of savings account to open, consider your needs and goals. What’s the timeline of your goals? Do you need flexibility when it comes to accessing your cash?

You may come to find that you want to use a combination of different savings vehicles. For instance, some people may have both a high-yield savings account and a CD – each designated for a different goal.

Let’s take a look at a few basic examples.

• Emergency fund. An emergency fund is money you set aside to help cover any unexpected expenses, such as a medical emergency or urgent home repairs. Many financial experts generally recommend having enough in your emergency fund to cover at least three to six months of living expenses. Accounts that could be useful here include an high-yield savings account or money market account if you want to add money as you go and easily make a withdrawal when you need the funds. You may also want to look into a no-penalty CD account where you could earn a competitive rate and have the flexibility to withdraw your funds. Just remember that with no-penalty CDs, once you open an account and make a deposit, you can’t continuously add money to it.
• A near-term goal like a dream vacation or home renovation. If you already have some money set aside in a traditional savings account for a short-term goal, you may want to consider putting that money into a high-yield CD instead, where you could earn a higher interest rate. Just make sure you don’t need the funds for something else right now, like an emergency fund. Remember, when you fund a CD, you’re committed to keeping your money deposited for a fixed period of time. Taking money out before a CD matures will result in an early withdrawal penalty (unless it’s a no-penalty CD).
• Locking in different CD rates. Here are some strategies you may want to consider: 
  • A CD ladder is a savings strategy where you spread your money across multiple CDs with different maturity dates. The goal is to lock in high APYs over time across multiple CDs. And as those CDs mature, you can either take out your money to spend or roll it over to a new CD to continue your ladder. 
  • A CD barbell involves splitting a pool of money and putting funds into short-term and long-term CDs. For example, you could open two CDs – one for short term and one for long term – and deposit half your money into each. The goal is to earn a higher average yield than you would have if you had simply put that money into a traditional savings account or short-term CDs. At the same time, the barbell strategy offers flexibility for you to access a portion of your savings once the short-term CDs mature.