You can use a savings account to put funds away for large purchases, emergencies, life events, and more. Plus, this type of account earns interest, which will grow your savings to help you reach your goals.
Learn the essentials about savings accounts—and how to find the one that best fits your needs—below.
How Does a Savings Account Work?
A savings account is a deposit account—or an account that you can deposit money into and withdraw money from to manage your finances—at a credit union or a bank.
They are meant to help you grow your savings in a safe location that pays interest, which is an amount regularly added to your balance based on the account’s interest rate (Annual Percentage Yield, or APY).
You can deposit money into a savings account whenever you choose to, and even set up regular transfers from your checking account to your savings account to grow your savings balance automatically using Digital Banking.
Some financial institutions limit how many times per month you can transfer out of one savings account and into other accounts and may charge you if you go over your limit.
If you are approaching your withdrawal limit, check if your financial institution limits ATM and in-person withdrawals—typically, most do not.
What Is a Savings Account Interest Rate?
Your savings account’s APY decides how much interest, given in the form of dividends, is added to your balance every year.
Savings accounts earn interest in two ways: simple interest and compound interest.
1. What Is Simple Interest?
If your savings account earns simple interest, it only creates interest based on its principle amount, or how much you have deposited into it.
For example, an account that earns simple interest at 1.00% APY with a balance of $1,000 would earn $10 in interest every year if no additional deposits were made.
2. What Is Compound Interest?
With compound interest, the interest added into your account earns interest as part of your account’s balance.
Interest can be compounded in a variety of ways, including yearly, quarterly, or monthly. Some accounts even compound interest daily! The more frequently interest is compounded, the faster your savings will grow.
While interest rates vary, and depend on the economy’s condition, some credit unions and banks offer High Yield Savings Accounts, which you can use to grow your savings as fast as possible.
Why Should I Get a Savings Account?
A savings account can help you raise the funds you need for your unique goals.
For example, you could open a savings account to prepare for your child’s college expenses. Many people also use a savings account to save for retirement. You could even save up for a dream vacation.
It’s up to you! No matter what your goals are, opening a savings account will help you build the budget to achieve them.
How Do I Get a Savings Account?
Follow these steps to open a savings account:
- Compare the savings accounts offered by at least three different financial institutions to find the best rate. If you can, open a High Yield Savings Account to get the most interest.
- Check for fees or withdrawal limits. Some savings accounts have monthly fees, though these can be waived if you fulfill specific requirements, such as a minimum balance. Try to find an account without many fees and select one with withdrawal guidelines that make the most sense for you.
- Open your account. You will need to provide your name, address, Social Security Number (SSN), email address, and ID.
Credit Union 1 offers a variety of savings account types, including a High Yield Savings Account, with no monthly maintenance fees or minimum deposits, 24/7/365 access to your funds with Digital Banking, and competitive rates to help you save better.
Open an account online, over the phone, or at your nearest CU1 branch.