A savings account is an account provided by a bank for individuals to save money and earn interest on the cash held in the account. A savings account can be used to save money for specific expenses or for longer-term undefined goals, all while earning interest on the money in the account.
Some individuals use savings accounts to save up money for a specific goal, such as a down payment on a home or a future vacation. Others have no specific plans for the money, but use the account as a way to store their cash in a safe place while earning a return on it. Some savings accounts are used as an emergency fund, allowing an individual or family to save money safely to be used in case of emergency circumstances, such as job loss or hospitalization. An ATM card can often be linked to a savings account, but this card can only be used at automated teller machines, not as a debit card to buy things at stores.
Savings accounts are easy to obtain because they generally do not require a credit check. They are a safe way to store money in a bank. Also, they often offer some small amount of interest on the money stored in the savings account. The interest is generally less than that of CDs or money market accounts, but more than offered for checking accounts. Interest is usually 1 to 2 percent annually.
Savings accounts offer limited use of the funds in the account because they are generally not available for paying bills or buying items directly via checks or debit cards. Some accounts have Internet access, which can be used to move money from the savings account to other accounts, but some savings accounts require the account holder to physically go to the bank in order to deposit or withdraw money.
Most banks, credit unions, and savings and loan associations offer savings accounts. The financial institution offering savings accounts will generally use the money in savings accounts to fund loans serviced by the bank, providing the income that is then used to pay the interest accrued for savings accounts.
Savings accounts are considered extremely safe. In the U.S., they are backed by guarantees by the federal government, which means that even if the bank fails, your money in a savings account is insured up to $250,000 and will be returned to you.