What Is a Savings Account?
A savings account could be a valuable tool for building financial security. The money you save, along with the interest it earns, may help you prepare for a large purchase or work toward your short- and long-term financial goals. A closer look at how this account works may help you get more from your savings.
What Is a Savings Account?
A savings account is an interest-earning deposit bank account that allows you to store and grow your money. Interest is a small amount of money that your bank pays you based on your balance for keeping funds in the account. You can use this account to set aside money for emergencies, future goals or expenses beyond your everyday spending.
How does a savings account work?
Here's a look at the process:
- Deposit money into your account: You can add money through direct deposit, transfers from other accounts, or cash and check deposits.
- Earn interest on your balance: The bank pays you interest on your savings based on the account's annual percentage yield (APY), or yearly earnings rate. As interest adds up, your savings can continue to grow over time.
- Withdraw money when you need it: You can typically access your money without penalties, making a savings account a flexible place to keep funds for future goals.
Types of Savings Accounts
There are different savings account types to fit your goals. Common types include:
- Traditional: This is a basic account for everyday saving. It usually pays a lower interest rate. You can deposit or withdraw money anytime. You may not need a large starting deposit.
- High-yield: This pays a higher interest rate, so your money may grow faster than in a traditional account. You can access your money when needed.
- Money market: This is a savings account with some checking features, like a debit card or checks. It often pays more interest but may require a higher balance. There might be limits on how often you can withdraw money.
- Certificate of deposit (CD): You agree to leave your money in a CD for a set time. It usually pays a higher interest rate, but you might pay a fee if you take your money out early.
- Health savings account (HSA): This is a savings account just for medical expenses. The account may pay interest, and you can use saved funds for qualified healthcare costs. You typically need a high-deductible health plan to open one.
What Are the Benefits of a Savings Account?
Some common benefits of a savings account include:
- Building financial security: A savings account may provide a dedicated place to keep money for unexpected expenses, helping you prepare for financial emergencies.
- Growing your savings: The money in your account earns interest and can continue to grow the longer it stays in your account.
- Working toward savings goals: Whether you're saving for a vacation, home purchase, new car, or another future expense, this account gives you a place to set money aside and track your progress.
- Building strong savings habits: Many banks allow you to set up automatic transfers. This could make saving a regular part of your routine, even when you're contributing small amounts.
- Separating savings from everyday spending: Keeping your savings in a separate account might make it easier to stay focused on your goals and avoid spending money you've set aside.
How Does Interest Work on a Savings Account?
Interest is extra money your bank adds to your balance. You get it just for keeping your funds in an account for a certain amount of time. As interest is added, your balance increases.
The amount you earn depends on your:
- Interest rate
- Account balance
Interest rates vary by account. Your account statement will tell you what it is. While the rate may seem low, your balance could grow steadily.
Do I have to pay taxes on the interest my savings account earns?
Most interest that you receive is taxable income in the year it becomes available to you. In the United States, you must report all taxable and tax-exempt interest on your federal income tax return.
What Fees Come With a Savings Account?
Savings accounts are generally low cost, but it's important to understand potential fees before opening an account:
- Monthly maintenance fee: Some savings accounts charge a monthly fee. Many banks may waive it if you meet certain requirements, like keeping a minimum balance or linking it to a checking account.
- Excess transaction fee: While federal regulations no longer limit savings account withdrawals, some banks may charge a fee if you exceed a certain number of transactions during a statement cycle.
- Paper statement fee: Some banks charge a small fee if you choose to receive paper statements by mail instead of electronic statements.
- Account closing fee: Some financial institutions may charge a fee if you close an account shortly after opening it.
The good news is that you can avoid many of these fees. When comparing savings accounts, look at both the interest rate and any fees that could affect your earnings.
Can I Withdraw Money from a Savings Account?
Yes, you can withdraw money from a savings account when you need it. You can take money out in several ways, including:
- Withdraw cash at a branch or an ATM
- Transfer money to another account
- Make payments using online or mobile bill pay
- Use a connected digital wallet (if your account allows it)
- Send money with using digital payment services (if your account allows it)
- Write checks (if your account allows it)
Can I use direct deposit with a savings account?
Yes. Many employers, government agencies, and benefits providers can send payments directly to a savings account. But some payroll systems only support direct deposit to a checking account, so it's a good idea to confirm with the payment provider first.
Sending payments directly to your savings account could be a simple way to automate saving.
How Do I Close a Savings Account?
To close a savings account, start by withdrawing or transferring any remaining funds and making sure all pending transactions have cleared. Once your balance is zero and there’s no outstanding account activity, contact your bank by phone, online or at a branch to request account closure.
A bank representative can confirm the account is ready to close and they’ll guide you through any remaining steps.
Ready to Open a Savings Account at KeyBank?
Explore KeyBank’s savings account options to find one that fits your needs. You can open a KeyBank savings account online if you meet the eligibility requirements. You may also visit a nearby branch if you’d prefer to do it in person or want to open a joint account. You’ll need your Social Security number, a valid ID, and an opening deposit.