What is a Savings Account?

A savings account is a place to store cash securely while earning interest.

Savings accounts are often used as a way to set money aside for a specific purpose, such as savings for a down payment on a home, saving for a vacation, or simply saving money for a “rainy day” – in other words saving for an unplanned or emergency expense.

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Why do I need a savings account?

Savings accounts are a great way to keep money you plan to spend separate from money you want to save. By keeping these accounts separate, you’re more likely to stick to your budget and continue to set money aside for future purchases or for an emergency.

Another benefit to savings accounts is that banks pay interest on these accounts, and unlike investments, your deposits are insured by the FDIC, so you can’t lose money you deposit into a savings account (up to the FDIC limits). Want to know if all of your deposits are fully FDIC-insured? Use the FDIC deposit insurance calculator here.

However, keep in mind that savings accounts, unlike checking accounts, may have restrictions on how often you can withdraw from them. Whereas a checking account allows many transactions (your debit card transactions, cash withdrawals from ATMs, automatic bill payments, etc.), savings accounts are meant to serve more as storage of cash.

How much money should I keep in my savings account?

It’s a good idea to work toward having six months’ worth of expenses in your savings account. So, if your expenses add up to $3,000 each month, you should aim to have $18,000 in your account. These funds can be used in case of an emergency expense (flood damage in your basement, car repairs, medical bills, etc.) or a loss of income.

If you can’t keep that much in your account at this time, set aside as much as you can toward savings. The simplest option? Set up an automatic transfer from your checking account to your savings account each month.

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