What is a Savings Account?

Key insights:

Savings accounts are deposit accounts that are designed to help you grow your money over time via compound interest

• Typically, these accounts are used for short- to medium-term goals such as travel and emergency funds
• There are several types of savings accounts, including traditional savings accounts, certificates of deposits (CDs) and money market accounts (MMAs), each offering different benefits and features

A savings account is a bank account that lets you earn interest on your money while keeping those funds relatively accessible. Money kept in a savings account at an FDIC-insured bank is also insured up to FDIC limits, so it’s a low-risk and common option for many short- to medium-term savings goals.

Let’s explore how savings accounts work, how to open a savings account and types of savings accounts you may consider.

How does a savings account work?

When you put your money in a savings account, the bank will pay you interest. Savings account interest typically compounds daily, monthly or quarterly and is paid monthly.

Savings accounts generally come with variable interest rates, which means the interest rate can change at any time. Most banks set the interest rates they pay on savings accounts at their discretion.

Savings accounts may require minimum balances or minimum opening deposits. If your balance falls below a certain amount, you may be charged a monthly service fee. Citi’s savings accounts do not require a minimum opening deposit.

Savings accounts typically do not come with checks or debit cards, but may offer ATM cards.

Benefits of savings accounts

A savings account lets you earn interest on deposited funds. It can also be a handy way to put aside money that you'd like to keep for a short-term financial goal, like planning a vacation.

Money in a traditional savings account can generally be accessed when you need it. Some banks may place a limit on the number of transfers or withdrawals you can make from your savings account. However, it’s typically easy to withdraw money or transfer funds to your checking account.

Savings accounts can offer a good way to build up savings each month without having to think about it. For instance, many banks, including Citi, allow you to set up automatic recurring deposits.

Different types of savings accounts

In addition to traditional savings accounts, many banks offer a variety of accounts with unique benefits. Those accounts can include:

• Certificates of deposit (CDs): With a CD, you deposit your money for a specified time period (called the term), such as 3 months to 5 years. CDs may offer higher interest rates than a traditional or high-yield savings account, but you may pay a penalty for withdrawing funds ahead of schedule. CD interest rates are typically fixed for the term, but some types, like step up CDs, have rates that increase on a set schedule. Citi offers a range of CD products and terms, including No Penalty CDs.
• Money market accounts (MMAs): These accounts are similar to traditional savings accounts and some banks even use the term interchangeably. The key difference is that MMAs may offer features such as the ability to write checks or make debit-card transactions. These accounts may have a minimum balance requirement.

How to open a savings account

To open a savings account with a new bank, you’ll typically have to provide the following:

• A government-issued photo ID, like a driver's license or passport
• Your Social Security number or individual tax identification number
• Proof of address, such as a recent utility bill with your name on it

Most banks also require that at least 1 account holder be at least 18 years old. (Some banks offer savings accounts that a parent or guardian can share with a minor.)

If you want to open a Citi savings account, you can do so via Citi^® Online, by visiting a branch, or by using the Citi Mobile^® App¹.

How much should you keep in your savings account?

Determining how much money to keep in your savings account depends on your financial situation and goals. Let’s say you want to start an emergency fund to boost your financial stability. In that case, keeping 3 to 6 months’ worth of living expenses may make sense. If you’re saving for another goal, like a trip, your goal may depend on your travel budget.

Keep in mind that you can open multiple savings accounts and use different types for different goals. The key is to ensure you’re comfortable with the requirements for each account. That way, you can take full advantage of their features without having to worry about fees and penalties.

¹Regular account charges apply. Citibank does not charge you a fee for using the Citi Mobile^® App. You must have Internet access through your mobile device and charges from your wireless carrier may apply. The Citi Mobile App is available for use with compatible mobile devices

Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products