Are savings accounts safe?
Yes, savings accounts are safe. They're usually insured by the U.S. government, within limits.
Federal Deposit Insurance Corporation (FDIC) insurance keeps your savings account safe. It protects you up to $250,000 per person per account per bank in case of bank failure. All reputable banks have FDIC insurance on their deposit accounts, including savings accounts.
Banks also use advanced encryption on your online accounts to ensure that identity thieves don't gain access to your financial information. But you are also responsible for keeping your digital keys safe from thieves. Take care not to leave your passwords or bank account information where someone could find them, or they may be able to access your funds remotely.
Read More: Safest Banks in the U.S.
How much should you keep in savings?
It's up to you to decide how much to keep in your savings account, but you should put at least enough in the account to avoid fees. Some savings accounts require you to keep a certain amount of money in your account in order to avoid a monthly maintenance fee. There might also be an opening deposit requirement, which could be different from the ongoing minimum balance requirement.
A savings account is also a good place for your emergency fund and money you plan to use in the next three to five years. You'll have the money at your fingertips and you'll earn a modest amount of interest without the near-term risks that come with stock market investments.
Some savings accounts have a tiered APY system where you earn a higher interest rate for keeping more money in your savings account. If the account you're interested in is set up this way, keep as much money in the account as you're able to. That way you can take advantage of the higher APY. Don't exceed $250,000 in a single account, though. Money over this amount won't be protected under FDIC insurance and if your bank goes under, you could lose it.
Can you withdraw money from a savings account?
Most savings accounts don't allow you to withdraw money directly, though a few banks do offer ATM cards. Usually, if you'd like money from your savings account, you must transfer it to a checking account and withdraw it from there via debit card, check, or a visit to a bank branch.
For many years, savings accounts were governed by Regulation D. This is a federal law that prevents you from making more than six withdrawals or transfers out of your savings account in a month. Not all transactions fell under this rule. Deposits, in-person transactions at a bank, and ATM withdrawals (if your account offered an ATM card) didn't count toward your six monthly transactions. However, electronic transfers and automatic bill pay did count.
The Federal Reserve suspended this regulation at the start of the COVID-19 pandemic and it still hasn't reinstated it as of 2023. However, individual banks can still choose to limit how many withdrawals customers can make from their savings accounts.
How many savings accounts can you have?
As many as your bank allows. That's often one account per bank. But you can open accounts at multiple banks, and some banks let you have more than one account. If you want, you could open 10 savings accounts at 10 banks, one per bank.
Some people open one savings account per financial goal to make managing money easier. For example, you may open one account for “college savings” and another for “emergency fund.”
Alternatives to savings accounts
Savings accounts have their place, but they're not right in every situation. Here are a few other bank accounts you may want to consider.
Checking accounts
Checking accounts are better than savings accounts for money you use for everyday spending. While most checking accounts don't offer interest, they also don't have limitations on how many times you can withdraw money from the account. Most of them also give you a debit card and checks so you can withdraw money directly at a moment's notice.
Checking accounts are widely available at banks and credit unions as well. If you get a checking account at the same bank as your savings account, you can quickly transfer funds between the two as needed.
Money market accounts
Money market accounts are similar to savings accounts, except that money market accounts often include checks and/or debit cards. Since you can withdraw money directly from the account, a money market account could be a better fit if you want to earn a high interest rate on your savings and also access your money more easily.
Money market accounts typically require a higher minimum balance than savings accounts. In some cases, you may need a four- or five-figure sum to open one of these accounts and earn the advertised interest rate. So a savings account is definitely a better fit if you don't have a lot of money to deposit. But if you can afford a money market account, you might be able to earn a higher APY than you could with a savings account at the same bank.
Certificates of deposit (CDs)
Certificates of deposit (CDs) are another type of bank account with a high APY. The catch is you're not allowed to touch the money in a CD until the CD term ends. This can range from a month to over five years, depending on the CD you choose. If you withdraw your money before this date, you will pay a penalty equivalent to one or more months of interest.
CD rates can be higher than high-yield savings account interest rates, but these accounts are only a good fit if you won't withdraw money before the end of the CD term. If you think you may have to, a savings account is a better fit.
Is a savings account right for you?
A savings account is a great place to store money you don't plan to use immediately but want to keep accessible. It's also a good place to save for a big financial goal. It gives you a safe way to earn interest and you won't have to worry about losing money as long as you avoid monthly fees and limit your monthly withdrawals.
If you don't think a savings account is the right home for your money, consider a checking account, a money market account, or a CD instead. These accounts are all widely available at banks and credit unions, so it shouldn't be too difficult to find one that suits you.