A savings account is an interest-bearing deposit account held at a bank or another financial institution that provides a modest interest rate. Banks or financial institutions may limit the number of withdrawals you can make from your savings account each month, and they may charge fees unless you maintain a certain average monthly balance in the account. In most cases, banks do not provide checks with savings accounts.

Advantages of Savings Accounts

Because savings accounts pay interest, it is more financially advantageous to keep unneeded funds in a savings account than a checking account. In addition, savings accounts are one of the most liquid investments outside of demand accounts and cash. While savings accounts facilitate saving, they also make it very easy to access your funds. In contrast, it is typically more difficult to cash a bond, make a withdrawal from a retirement account, or sell stocks or other assets.

How Much Money Should You Have in Your Savings Account?

As a general rule of thumb, financial advisors recommend you have enough savings to cover at least three to six months' worth of bills. This gives you a cushion in case you lose your job, face a medical issue or encounter another money-draining emergency. Because of the liquidity of a savings account, you can access the money quickly and easily when you need it. While some analysts recommend keeping more than that in your savings account, most think that excess money should be placed in higher interest-bearing accounts or used to pay down debts with higher interest rates.