How do savings accounts work?
by Stephanie Halligan
 

You're probably already familiar with how a checking account works—it's what most people use to make day-to-day financial transactions, like depositing paychecks, withdrawing money from an ATM, or setting up automatic debits to pay for the cable bill each month.


But a checking account has another important partner in crime, and that's the savings account. A savings account, like a checking account, lets you keep your money in a safe place.

But unlike most checking accounts, you can also earn a small amount of interest each month, and if used the right way, a savings account can help you curb impulsive, unnecessary spending and meet your long-term goals.


Savings accounts are offered at most banks. Like checking accounts, savings accounts are FDIC-insured, meaning the bank insures your money up to $250,000. Basically if the bank goes out of business, you won't risk losing your money up to that amount—making a savings account a safer alternative to stashing your cash under your mattress.

Some savings accounts may require a minimum balance and most offer an interest rate to help your savings grow (even if only by a few pennies). The interest you earn on savings accounts can be compounded daily or monthly and rates vary among financial institutions, so be sure to ask your bank or credit union about its current rates before you enroll.


If you're already familiar with savings accounts, you probably know the interest rates are pretty low these days.

With such measly returns, you may be asking, “Why should I bother opening up a savings account if my checking account is working just fine?” If you’re looking for ways to save for the future, a savings account could be the missing piece you need to help you avoid overspending and stash away some cash.

By setting up automatic transfers from your checking account to your savings account, you can limit your temptation to spend all of your money at once—and you don’t have to think about it every time you want to save money.
Stephanie Halligan
Stephanie is the creator of The Empowered Dollar , a website dedicated to helping millennials fix their finances and find their stride in money and life. When she’s not blogging, Stephanie is designing financial education curriculum that teach millennials and low-income families about smart money management.
 

Teachers Insurance and Annuity Association of America (TIAA) has sponsored this post for information purposes only. Stephanie Halligan is unaffiliated with TIAA, College Retirement Equities Fund, and their affiliates and subsidiaries (collectively TIAA-CREF), and TIAA makes no representations regarding the accuracy or completeness of any information on this post or otherwise made available by her. Ms. Halligan’s statements are solely her own and are not endorsed or recommended by TIAA.

The information is provided for informational purposes only and is intended to engage you in thinking about your financial planning needs. Of course, each person's results will vary based on various factors, including, but not limited to, the products or strategy selected. There is no guarantee that results similar to those portrayed will be achieved. Certain products and services may not be available to entities or persons.

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