Compare Savings Accounts

Savings accounts give consumers a safe place to store their cash and earn modest interest income, while giving banks and credit unions money to maintain their reserves and lend to other customers. Savings accounts typically provide lower rates than financial institutions charge for loans, allowing lenders to profit.

You can compare the best savings accounts here at WalletHub. You can also learn more about how savings accounts work below.  

How Savings Accounts Work

1. A consumer makes an initial deposit. Consumers are usually required to make a deposit to open a savings account. Then the bank or credit union uses the deposits to maintain their reserve requirements as well as to fund loans and extend credit to other customers.
2. The deposit earns interest. The deposit earns interest which grows the account balance over time. Interest rates can vary based on whether they're fixed or variable, the macroeconomic environment, the financial institution's policies and performance, and the type of account.
3. The interest compounds based on the account schedule. The interest may compound periodically, depending on the account's schedule, further increasing the account balance. Note, interest can compound daily, monthly or quarterly, depending on the financial institution and the account.
4. Fees are charged for maintenance or penalties. Banks may charge fees for maintenance or penalties associated with certain actions, such as exceeding withdrawal or transfer limits within a specified time period.
5. The FDIC or NCUA protects the account with deposit insurance. The FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration) provides deposit insurance, which protects a savings account up to $250,000 in case the bank or credit union fails.

Now that you know how a traditional savings account works, you may be interested to learn about other types. The various types of savings accounts each work a bit differently, and it's important to understand the mechanics of each so you can make an informed decision.

How Different Types of Savings Accounts Work

High-Yield Savings Accounts

High-yield savings accounts have higher interest rates in comparison to traditional savings accounts and are typically offered by online banks. They may have certain restrictions, such as a minimum balance threshold or limits on the number of withdrawals per month.

Online Savings Accounts

Online savings accounts can be accessed and managed entirely from the company's online banking platform or mobile app. These accounts often come with relatively high interest rates and may have lower fees compared to traditional brick-and-mortar banks.

Health Savings Accounts

Health savings accounts (HSAs) are specifically designed to help people save for qualified medical expenses. These accounts are available to those who have a high-deductible health plan (HDHP). Contributions made to an HSA are tax-deductible, and the funds can be used to pay for eligible medical expenses tax-free. HSAs often offer interest on the account balance and can be a tax-advantaged way to save for healthcare costs.

Learn more about the different types of savings accounts and more from WalletHub's savings account guide.

You should keep three to six months' living expenses in your savings account, plus a bit extra. Most experts recommend saving enough money to live on for the amount of time it would take you to find a new job if you were to lose yours and adding a little more for emergencies.

How to Determine How Much You Need to Keep in Savings

1. Split your purchases into two categories: fixed and...

You should have at least two savings accounts, one for short-term goals and the other for long-term savings. Also consider opening and maintaining a savings account for each of your savings' goals, like an emergency fund, retirement, or a down payment for a house.

The average American has five bank accounts, according to a study by Mercator Advisory Group. Having multiple accounts can help you budget more efficiently and create a structure to reach...

The difference between a high-yield savings account and investing is a high-yield account preserves capital and earns modest interest income, while investments are more of a risk but have the potential for greater returns. So, savings accounts are used to store cash, and investments are employed to grow money.

High-Yield Savings Accounts vs. Investing

Savings accounts currently don't have withdrawal limits under the law. Before the pandemic, the Federal Reserve's deposit rules limited savings account customers to six withdrawals per month, and even though the regulations have been relaxed, some financial institutions have retained that policy. 

Key Things to Know About Savings Account Withdrawal Limits

• The Fed's savings account limit of six “convenient transactions” per month, including withdrawals and transfers, was lifted in 2020 due to...