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What Are Savings Accounts? How Do I Open One?

Savings accounts, when used properly, are an excellent way to help you save and manage your money. Understanding when and how to use a this type of account is a critical component to any financial management plan.

Remember, financial freedom doesn’t mean making more money. It doesn’t matter how much money you make, it matters how much money you can save. 

What Are Savings Accounts?

A savings account is a safe place to keep your money. Saving accounts are insured by the FDIC, or NCUA, up to $250,000. Simply put, that means you can deposit up to $250,000 without worrying about losing a penny!

An additional benefit a savings account provides is the fact that the bank generally pays the account holder interest for the money kept in savings. Even though the interest isn’t high, it’s completely risk free. 

How Do Savings Accounts Work?

This type of account differ from a traditional checking account. Unlike checking, you won’t want to use a savings account to fund everyday expenses or pay the bills. These accounts are designed to help the account holder save money. 

Money can be directly deposited into this account via your paycheck, or you can physically deposit money in the account whenever you want. Withdrawing money is also possible, but you’ll be restricted to six withdrawals per month. 

Many people have numerous savings accounts, each account may serve a different purpose. For example:

  1. The first account may be a 3 month cash reserve account. A common rule of thumb in the personal finance world is to have X amount of cash saved up as reserves. You never touch this account unless you absolutely need to. 
  2. The second account may be designed for a very specific purpose. For example, a family may want to take a vacation within the next 24 months. They estimate the vacation will cost them $4,000, so they start saving $167/month for the next 24 months. A vacation isn’t the only expense people have accounts for. However, saving up for a car, engagement ring, wedding, or any large purchase can be made possible through a dedicated savings plan. 

What to Pay Attention to When Choosing an Account

There are a few things you’ll want to fully understand before you choose the right savings account, at the right financial institution. 

Monthly Maintenance Service Fees

First and foremost, many banks charge a monthly or annual maintenance fee on savings accounts. Also, a fee is between $5 and $10 per month. 

Minimum Deposit Requirements on Savings Accounts

Also, there are minimum deposit requirements, or minimum balance requirements. If your account balance drops below a certain amount, you may be subject to a fine from the bank. Fully understand what that minimum number is. Some banks have a minimum of $25 and others are $100+. 

Interest Rate & APY

One of the greatest benefits a savings account provides is the fact that they are fully insured up to $250,000. This means it’s a risk free place to keep your money. An additional benefit is the interest or annual percentage yield (APY) a bank will pay. This is essentially the money a bank gives you for keeping your money with them. Various banks and savings account types will have different APY. Be sure to shop around for the most competitive all in package. 

Types of Savings Accounts

There is not a one size fits all approach to saving accounts. There are numerous saving account types you can choose from. 


This account can be set up at most banks or credit unions. These accounts are also insured up to $250,000, and money can be directly deposited into the account. 


  • Completely safe place to keep your money. 
  • You can set up numerous traditional savings accounts at the same bank or credit union.


  • The interest rate on a traditional savings account is minimal. The money kept in a savings account has the ability to earn a greater return, or interest rate, in another investment vehicle. 
  • Depending on your balance, you may be subject to fees from the bank and paying for checks. 


A high-yield savings account functions just like a traditional savings account. However, the interest rate the bank provides is higher than the interest rate on a traditional savings account. 


  • All the benefits of a traditional savings account are present in a high-yield account. 
  • The interest rate provided is above and beyond the interest rate a traditional account offers. This allows you to earn more money without increasing your risk profile. 


  • High-yield savings accounts typically have a higher minimum balance requirement than a traditional savings account.
  • Believe it or not, the interest rate is still not great and opportunity cost is still something that must be considered. 

Money Market

This account pays interest based on the current interest rates in the money markets. There is not a fixed number here. If the money markets interest rate increases, you earn more money. If it decreases, you earn less. 


  • Money market accounts are also insured up to $250,000 
  • The interest rate can move in your favor and you can earn more than a traditional savings account


  • Money market accounts often require a higher  minimum deposit and account balance 
  • Lastly, money market accounts, on average, have slightly higher fees than a traditional savings account 

Certificate of Deposit 

A certificate of deposit, also known as a CD, is a certificate that a bank issues a depositor when the depositor agrees to deposit money for a specific period of time. For example, as a depositor, you may go to a bank and say ‘I’m willing to give you this amount of money for 12 months, what are you willing to pay me?’

The bank will show you their certificate of deposit options, which will all provide a greater interest rate above and beyond any of the account types mentioned above. 


  • Certificate of deposits earn a greater rate of return than a traditional savings account, high-yield savings account, or even a money market account 
  • Certificates of deposit are safe 


  • Certificates of deposit lose their liquidity. Remember, a savings account allows you to withdraw money up to 6x per month. A certificate of deposit does not allow you to withdraw money for whatever period of time you agreed to deposit money for. However, if you were forced to withdraw money due to an emergency situation, you will have to pay high fees. 


A specialty savings account is designed for individuals or families with a specific savings objective. For example, there are college savings accounts, kids savings accounts, home down payment savings accounts, health savings accounts and individual retirement accounts. 


  • These accounts serve a specific purpose, and can help keep your money more organized. 
  • Many of the accounts mentioned above offer various tax benefits and advantages that can reduce your tax liability and keep more money in your pocket each year. 


  • Some people do not like having their money spread across numerous accounts. 
  • Just because the account type is special does not necessarily mean you are earning a fantastic interest rate. Additionally, there may be a more lucrative investment vehicle that will help you reach your financial objective quicker. 

How To Open a Savings Account

Opening a savings account is easy! All you have to do is the following few steps.

Step 1: Shop Around for Different Account Types

Firstly, shop around. As mentioned above, various banks or credit unions offer different account types, fees, and requirements.

Step 2: Identify the Right Type of Account

Secondly, once you’ve selected the financial institution you want to open an account with, identify what type of account is best suited for you and your goals. 

Step 3: Fill Out the Necessary Paperwork

Additionally, meet with one of the bank employees to get the account set up. You’ll need to provide basic identification and fill out some paperwork. 

Step 4: Open the Account With a Deposit

Lastly, once the paperwork is completed, you’ll be required to deposit the minimum balance requirement to get the account opened. 

Savings Accounts vs Checkings Accounts

A savings account is not a checking account. A savings account is designed to help people save money, whereas a checking account’s primary purpose is to function as cash for the account owner. 

With a checking account, the account owner will have access to all the money in a savings account by way of a checkbook or a debit card. Your paycheck can be directly deposited into a savings account, and you can enroll in auto bill pay for many of your bills/subscriptions. 

Is a Savings Account All You Need? 

Without question, a savings account is an excellent way to help you save and manage your personal finances. Saving money is a skill that many people struggle with. It’s easy to spend money and get in debt, it’s harder to put away a specific amount of money each week/month for a larger goal. The first step to unlocking financial freedom is to get started with a savings account! 

Beyond that, you may need some help, and that’s completely okay! In short, working with a coach, or professional financial advisor, is a fantastic way to align your goals with an action plan. A financial advisor exists to help make sense of the financial and investing world. Financial advisors are well aware of the various account types and investment vehicles available, and will help you select the one that’s best suited for you.