What is a savings account?

Everything you need to know about savings accounts

You’re making money. Congratulations! That’s great news for you. Now it’s time to start thinking about what you’re gonna do with it and a savings account is a great place to start.

Stuffing the mattress or burying your loot in the backyard are pretty old-school ways to manage cash. But we think you might want to learn why a savings account is a great option for you and your money.  

What is a savings account?

A savings account is an account opened at a bank or, banking institution, that grows over time with interest. Savings accounts can be a great place to store funds and earn interest.

An added bonus, your money is FDIC insured, which means up to $250,000 of the money in your account would be covered if the bank failed.

Savings account restrictions

Here are some savings account restrictions you may encounter:

Minimum balance

Some savings accounts require you to keep a minimum balance in order to avoid penalties (though more often, there are accounts with no minimum balance requirements).

Debit limitations

Some savings accounts have limits on the number of times you can take money out of the account. 

While it may seem like these are unnecessary restrictions, they have a side effect of actually helping you with your goals. They are essentially forcing you into keeping money in that account, which is good if you’re trying to, you know, save money.

Interest

A major incentive to keep money in your savings account is the interest you can earn. The more you have in there, the more your money will grow from the interest.

How do I open a savings account?

Opening a savings account is pretty easy – mainly you’ll just want to be prepared with some of your important information like your social security number and a government issued ID, etc. Read our article How to open a savings account to get the full scoop on how to get your savings started.

What kind of bank do I want?

There are several kinds of banking institutions that you’ll want to consider, each with its own pros and cons. For example:

Savings accounts through a local bank or credit union

There are a lot of options that fall into this category, which is somewhere in between the other two. You can often get great rates or features from some of these banks, so take some time to look them over and consider all your options.

Savings accounts with a big, traditional bank

It might have a lower APY, but what it lacks in interest, it can make up for in security and accessibility. You’ll have access to ATMs (and even bank offices) over a large area, which is nice, and you’ll have the confidence of a large, historical institution to fall back on.

Savings accounts with more modern, digital-only banks

Newer providers, like Chime, are digital-only. They have convenient banking apps, and usually have no minimums or hidden fees. They’re fairly new, so they don’t have the track record of the huge banks, but they are often perfect for young people.

Does a savings account have a minimum balance?

Some savings accounts do have a minimum balance. What does that mean, exactly? It’s the minimum amount of money you can have in your account before you start to suffer penalties. This minimum varies from account to account, so check. 

If you don’t keep at least the minimum amount in your account, you can expect to pay a fee, and this fee will recur if you don’t get your balance back up. Look for an account that doesn’t have a minimum balance so you don’t have to worry about it!

What interest rate does a good savings account have?

One of the biggest features that a bank will highlight in a savings account is its interest rate, though it’s not really as much of a factor as they probably want you to believe.

What is an interest rate?

That interest is expressed as a percentage and known as the Annual Percentage Yield (APY). The APY calculates how much interest your account will accrue over the course of a year, factoring in compound interest. In the simplest terms, it’s the amount of money your account will earn in a year.

So, if you have $100 in your account and an APY of 1.00%, you’ll have $101 in your account at the end of the year.

Is the interest rate the most important factor in picking a savings account?

Generally speaking, it’s not. As you can see above, we’re not talking about huge interest rates or large sums of money. Banks like to promote the interest rates on their savings accounts, but for most of us, that’s not a huge factor.

Sure, it’s nice to have your money grow on its own, but other factors, such as no minimums and ease of deposit and withdrawal are more important for most of us.

What fees are associated with a savings account?

Checking accounts can have hidden fees that can ding you for everything from using an ATM to calling your bank. But savings accounts rarely have fees associated with them.

There are certain savings accounts that do have minimum balances. They would charge you a fee if your balance dropped below that amount.

Thankfully, these days, you can easily find a good savings account that doesn’t have any minimum balance requirement or any fees associated with it at all. Your bank holds your money and offers you convenient ways to build on your savings and access them, but in the end, it’s your money, and you want to hold on to it, so finding an account with no associated fees is key.

Are savings accounts secure?

The short answer to this question is “yes.” The longer answer is that they are just as secure as other accounts, such as a typical checking account.

You might be concerned that your savings account is not secure, but you should know that your bank takes security seriously. If they have a breach, then they lose credibility and people would stop using them, so they emphasize security.

This goes for their self-service websites and apps as well. Nothing is ever 100% secure, banking institutions are as secure as you can hope for these days. Besides, if there’s some kind of breach in your bank, there are ways to address the problem, and your bank can help you take action.

In addition, these accounts are all backed by the Federal Deposit Insurance Commission (FDIC), a government organization that insures the money you have in your account up to $250,000.

What to look for in a savings account

It can be overwhelming task to find right savings account fit. Here are the main features to look for when you are opening a savings account: 

1. No monthly fee. You want your savings account to grow, so a monthly fee would work against this goal. Find an account that has no hidden fees and saving money will be easier.
2. No minimum opening deposit. You don’t want a gatekeeping account, one that’s only available to you if you have a hefty initial deposit. Find one with no minimum so you can deposit as much as you’d like.
3. Automatic transfers. This is a great way to make your savings grow. Find an account that automatically transfers money from your checking account so you don’t even have to think about adding to your savings. 
4. Mobile check deposits. To save you the hassle of going to the ATM, choose an account that lets you deposit checks right through the app. Snap a photo of the front and back of the check and get on with your day!
5. Easy withdrawal. Hopefully, you won’t have to take money out of your savings account often, but when you need to, you’ll want to be able to do it easily. Find an account that lets you take money out of an ATM whenever you’d like.
6. Interest rates. Your primary way to build your savings is to add money yourself, but choosing a savings account with a high APY will also contribute to the growth of your savings. This may not be the most important stat, but it’s a good one to check out.

What is APY for a savings account?

When you research a savings account, you’ll come across the term “APY”. This stands for “annual percentage yield.” This refers to the amount of money your account earns over the course of a year. The number simplifies the more complicated math involved with compound interest.

Basically, if you put $100 in an account with a 1% APY, at the end of the year, you’ll end up with $101.

As you can see, your savings account won’t balloon quickly because the APY is typically pretty low. Also, some banks place restrictions on the APY, adjusting it down the more money you have in the account or only paying interest if you keep your balance above a certain threshold.

Check out the small print on the APY and just remember: it’s something, but it’s not a lot.

What are some restrictions placed on savings accounts?

Savings accounts are not as flexible as checking accounts, which are primarily intended to help you pay your monthly bills (like rent and utilities) as well as other expenses. Your savings account is designed to encourage savings (naturally), so there may be restrictions on how often you can transfer or withdraw funds.

Look for a savings account with $0/low minimum monthly fees/penalties.  

What are the benefits of a savings account?

According to statista.com, 46% of Americans aged 18-24 have no savings. The figure dips slightly to 41% of Americans aged 25-34 who are in the same situation. That means that more than 2 out of 5 young people lack any financial cushion! 

• The biggest benefit to having a savings account is it serves as an emergency fund — that is, peace of mind — to get you out of most financial scrapes. Most experts advise you to save up three months’ worth of bills. At Roost, we suggest you start with what you can. Congratulations are in order even for your first $300. Set a goal from there and add to it as you can. 
• As your savings account gains ground, you earn interest and get to watch it grow.  It may not be as much interest as you could see in certain types of investments (that’s a topic for another day, as it’s a pretty complex one), it’s still a solid way to park money for a rainy day and watch it grow, so you can use it down the line for a house down payment or an emergency.

What you should remember about your savings account

1. Keep track of your balance

It’s easy to set up an account and then forget about it, especially if you set up automatic transfers. But you don’t want to ignore your savings account.

Check on it every so often to see how much you have in there. That way, you’ll know if you can comfortably withdraw some funds for a rainy day. It’ll also get you in the habit of monitoring your finances, which is always a good idea.

2. Pair it with the right checking account

A savings account is great, but it really comes into its own when you have a good checking account to go along with it.

Often, you’ll find that banks and financial institutions offer you extra benefits if you have both your savings and checking accounts and it’s usually more convenient, although, you may find a combination of two different providers that works best for you.

We can help you find the right checking account for your needs, such as the best ones for low balances, the best ones with no fees, and the best ones for people under 30!  Having a checking and savings account from the same bank can even give you certain perks, like overdraft protection, potentially saving you a lot of money in the long run!

3. Try to use it for emergencies only

One of the big reasons to have a savings account is to, y’know, save money (c’mon. It’s right there in the name!).

As Statista pointed out, most Americans struggle with savings and find themselves on the brink of being unable to deal with a financial emergency, so having a savings account will help set you up to deal with potential problems that can come up.

So, give yourself that cushion and, even if you’re tempted, try your best to keep your hands off your savings.

Savings accounts for recent college graduates

Important saving accounts features for college graduates

No minimum balance

This is key, since there are many accounts out there that do have a minimum balance. If your balance dips below the minimum, you’ll be hit with a fee, which can recur over and over if your balance stays low.

As a new college graduate, it may take you a while to build up your savings and you may find that you have to dip into your account from time to time, so you don’t want to have to worry about a minimum balance.

No maximum number of transactions per month

You’ll also want to see if there’s a maximum number of transactions you can make per month, especially if you think you’ll need to dip into it from time to time. 

A modern, mobile app

Your parents and grandparents may love taking a trip down to the bank, but you’re busy working multiple jobs and making time for your friends.

A good mobile app will allow you to deposit checks remotely, transfer funds instantly, check your balance easily, and set up alerts so you’ll know what’s happening with your money.

High APY

Finally, you’ll want to see what the interest rate (or annual percentage yield (APY)) for the account is.

The higher the APY, the more your account will grow per year. This is less of a factor for recent college graduates, as you likely won’t have a ton of money in your account, so you should prioritize this less than the other factors.

Best types of banks for college graduates

There are several different types of banks you might consider. These range from the massive “big banks” to some new banking entities that are carving out their own niche in the financial space. As usual, there are pros and cons for each type of institution. For example:

• Banking applications: New companies in the banking space, like Chime, Simple, or CIT, can be a lot more innovative than traditional banks but may lack the additional products and in-branch service of big-banks. 
• Big bank: There are several massive banks out there that offer savings accounts, such as Bank of America, Chase, Wells Fargo, etc. These banks can be good places to park your money because they are firmly established, with a large geographical presence and a long history behind them. 
• Local bank or credit union: A nice compromise between the two extremes. Small banks may be more agile or technologically innovative than large banks, but they may not have the same reach as large institutions.

Take a look at your individual needs and keep your mind open. Find out which plan is right for you based on all the factors you consider important. Try not to eliminate an option until you’ve learned more about it!

Some common questions about savings accounts and college students

What about my student savings account?

A lot of banks in college towns offer special accounts for students. They may have different requirements and different features from non-student accounts.

But one thing they have in common is that they don’t last forever. Some banks will offer to roll over your money to a standard account when you graduate, but some won’t. Find out your bank’s policy and be proactive with your money.

Graduation is a busy time, but remember to move your money before you move on!

Should I stay with the bank I had in school?

It may be tempting to stick with what you know. Or maybe you think that you want to change your bank while you change your location and your career. This decision is an important one, so you’ll want to think about it carefully.

First, take a closer look at the pros and cons of your college bank.

• Why did you choose it in the first place?
• Did you pick it because it was familiar?
• Did you pick it because it was easy (maybe they just rolled your account over from a student account to a non-student one and you just let it ride)?

We’re here to tell you that these are not the right reasons to pick a bank. After you do your research, you may find out that it’s the right bank for you… but you may not.

Should I go with the bank my parents use?

This is another common fallback for many college graduates.

Picking a bank can be hard (We know! That’s why we’re doing our best to make it easier for you!) and sometimes, if you’re feeling overwhelmed or confused, going with something that’s familiar can seem like a smart decision.

But you want to be careful here. What’s right for your parents may not be right for you. If you’re interested in your parents’ bank — or if they’re advising you to follow in their footsteps —  then you should do your due diligence on their bank.

Are there other good options for saving money?

There are other choices if you want to save money, and some of these typically have better interest rates than a typical savings account.

You might consider a money market account or a certificate of deposit (CD) for example, but there are drawbacks. A money market account usually has a higher minimum balance and you’d have to commit to a CD for a long period of time.

These are great options if you’re more financially settled, so they are definitely worth looking into. But we recommend starting with a savings account first, then moving on to other options.

Choosing the right savings account

According to Statista.com, Americans are saving about a third less nowadays than they did in the 1960s. Though personal savings have been trending down the past few decades, recent crises like the financial turmoil of 2008 and the pandemic of 2020 have shone a brighter light on the importance of savings.

Since saving money is important, so, too, is finding the right account to keep your money in. You’ll want to look for an account that has no fees or minimums and one that allows for easy deposits and withdrawals. Having a good interest rate is nice, but it’s not the most important factor to consider.

Take a look at our list above and do a little research. Then, choose the account that’s best for you. Then, deposit some money, sit back, and feel secure!