Chapter 03: Which Savings Account Should You Choose?

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In Chapter 2, we discussed how much you should put away from each paycheck instead of spending it all as part of your savings strategy, but once you start doing that you’ll need to have somewhere to keep it. For most people, that’s a savings account. A savings account is a secure place to store your money that earns a small percentage of interest annually while your funds grow towards your long-term financial goals. 

Everyone’s savings needs are different. Whether you’re saving for a plane ticket or house down payment, or need easy access versus wanting to stow cash away untouched, it’s important that you do a little research to find a savings account that’s right for you.

In Chapter 3 of our savings series, we’ll cover how to choose a savings account, how to go about opening one, and the options for how to utilize yours. We’ll also point out some of the restrictions and fees you should be aware of before you choose. For an overview, keep reading or use the links below to go straight to a specific section.

What Is a Savings Account?

A savings account allows you to deposit your money with a financial institution, while also giving you a certain level of return on your account balance.  A savings account is specifically dedicated to funds you want to stash away for the future. There are a variety of options when it comes to savings accounts which we’ll cover in this guide.

Benefits of a Savings Account

If you’re going to start diligently portioning part of your income to savings every month, you should consider finding a savings account that helps you keep your money safe, is easy to use, and grows your money with accruing interest.

Benefits of a Savings Account


Stockpiling cash subjects your money to theft and damage. Savings accounts, on the other hand, offer safety and stability. They’re a great low-risk option because they’re federally insured, meaning if the bank fails, you’re covered up to $250,000.


All savings accounts offer interest payments on your balance. This is because your money doesn’t just stay stagnant — banks lend it out and make money by charging interest on the money borrowed. While most national and local banks offer relatively small interest rates averaging at just 0.06% annually (with most large banks at just 0.01%), you can look into alternative options to traditional savings accounts like money market accounts and certificates of deposit that offer a slightly larger return on investment.

Ease of Use

If you get a checking and savings account with the same bank, it’s usually easy to transfer money between the two accounts. Most large banks offer mobile banking, and you can even consider setting up auto-transfers so you can save without even having to think about it.

Alternatives to Traditional Savings Accounts

Now that you understand the importance of having a savings account, it’s time to decide which type of account is right for your needs. Most people opt for traditional savings accounts at their national or local bank, but you don’t have to limit yourself to just one option—there are also high-interest savings accounts and money market accounts. Diversify your savings by keeping an eye out for which accounts have the best interest rate and lowest fees. Consider talking with a financial advisor to ensure you’re choosing the account that’s right for you.

Alternatives to Traditional Savings Accounts

Certificate of Deposit

Certificates of deposit, or CDs, are a type of savings account that comes with a fixed withdrawal date. You can set this to be anywhere from three months to five years, so choose wisely. If you need to withdraw early, you’ll pay a penalty fee. The benefit? High interest rates — up to three percent annually. This is a great option if you know you won’t need your funds for a while.

Money Market Account

Money market accounts offer a better interest rate than a traditional savings account, averaging 0.08 to 0.11 percent. They are ideal for those who want checking features like a debit card — just be mindful of the limit of six monthly transactions that is standard for most savings accounts. For anything more than that, a regular checking account might be a better fit.

Online Savings Accounts

Online savings accounts are similar to traditional ones — without all the overhead costs. Because of this, they usually pay higher interest rates and don’t charge maintenance fees. They’re usually mobile-friendly and allow electronic transfers from your checking account.

Practical Uses for Your Savings Account

Once you’ve opened your account, you may realize you have a lot of questions around what to save for and how much to put away. The answers to these questions will vary for everyone depending on their needs and lifestyle, but here are a few of the most common uses to consider:

Practical Uses for Your Savings Account

Living Expense Cushion

At the very least, it’s best to save enough to have a cushion for basic living expenses such as rent and bills in case you suddenly lose your job or need to take extended time off for any reason. The cushion can be anywhere from three to six months of living expenses depending on what you’re comfortable with and how much you’re able to save. After this safety net is established, you can focus on saving for other needs.

Major Purchases

Another common use for savings accounts is to prepare for major life purchases like a down payment for a car or home. You can also use your account to save for more luxurious “wants” rather than “needs,” like a vacation or a new laptop. Remember that you’re entirely in control of when and what you spend your savings on.

Emergency Savings

We all know life can be unpredictable — that’s why it’s always smart to have a backup plan. Having an emergency fund can be a relief in cases of a car accident or medical emergency. Deciding how much to keep in an emergency fund depends a lot on lifestyle factors like having kids, pets, or student loans. Account for things like these when deciding how much to put into your emergency fund.

If you’re finding it challenging to determine how much to dedicate to your savings each month, try the 50/30/20 budgeting method, which stipulates spending:

  • 50% of your monthly income on essentials
  • 30% of your monthly income on wants
  • 20% of your monthly income on savings

This 20% might seem small, but can quickly build up and ensure you have the cushion you need. Try our 50/30/20 budgeting calculator to see how much you should be putting towards savings each month.

Savings Account Fees and Restrictions

Now that you’ve decided where and what to save, familiarize yourself with your bank’s policies. Playing by the rules will ensure that banks aren’t charging you fees that are easily avoidable.

Savings Account Fees and Restrictions

Limited Transactions

Federal laws restrict you to six “convenience” transactions per month in your savings account. This includes things like transfers to your checking account, automatic bill payments, and checks. Don’t worry about not having access to your money — there are no limitations on ATM or in-person withdrawals.  

Minimum Balance Requirements

Most large banks only require $25 to open a savings account, and most online accounts don’t require any minimum balance at all. However, if you want to avoid fees, the minimum balance requirement for most large banks is $300. Money market accounts will often require a much higher minimum balance.

Monthly Maintenance Fees

If you want to avoid annoying monthly maintenance fees, it’s important to keep the required minimum balance. Some banks waive fees for students under 18 or if you have a certain number of automatic transfers each month.

When it comes to saving money, you have options. Choosing the right account will set you up to maximize your income and achieve your financial goals. With a little bit of budgeting and planning, you’ll be able to enjoy things like better vacations, a new car, and ultimately, more financial security.

See How Useful a Savings Account Can Be 

As you can see, you have a lot of options when it comes to savings accounts—from where you set yours up to how much you gain in interest. Based on your priorities, you now have the knowledge you need to select the right type of account for you.While savings accounts are important for those who want to build up their savings for the future, keeping money in your checking account is also essential. In Chapter 4, we’ll cover the difference between checking vs. savings accounts, both of which have their own uses. You’ll learn more about how to use checking accounts, like joint checking accounts, and how to divide your finances between checking and savings.


Written by Mint

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