What is a savings account?

Grow your money faster with savings accounts

Unlike everyday transaction accounts, savings accounts offer high interest rates, which helps grow your funds. 

Savings accounts are usually online, and you won’t be provided with a debit card. This makes it harder to access your funds and potentially spend it. However, you can still easily access your funds through your online banking app. 

Essentially, the bank pays interest on the money you deposit and for leaving it there. 

Minimum savings balance

Depending on your bank, some savings accounts may require a minimum deposit to open one. Additionally, you may be required to maintain a certain balance to receive high interest. For example, if you make recurring deposits of $300 per month, or maintain a balance of $2,000. Therefore, if you expect to make multiple withdrawals (such as rent or bills), a checking account would better suit you. 

The average account offers an interest rate of approximately 2.2%, and that rate can increase. On the contrary, an everyday transaction account will have an interest rate between

0% and 0.5%.

Savings accounts vs checking accounts

Although both checking and savings are considered similar helpful financial tools, they have different features that you should be aware of before opening an account. The majority of users generally benefit from having both as they can complement each other, but

it’s still important to understand their limitations and how they could each benefit your financial goals.

Both accounts have their benefits and withdrawals. To find out more, read our article on Savings vs Checking accounts. 

Comparing different savings accounts

Before opening a savings account, its best to explore all your options and compare different features. Features you could compare include:

• Interest Fee
• Account Fee
• Minimum and maximum balance 
• Withdrawals and deposits 

Read more about savings accounts and how they could suit you with Moneysmart.

How can banks afford to offer interest?

That’s a question that easily crosses anyone’s mind. To put it simply, the money that banks earn from interest on loans is the money that is offered (as interest) to deposit account holders. You may find the best interest rates with online banks. Online banks can offer high-interest rates, as they don’t have the expenses correlated with brick and mortar locations.

Banks also earn money through different fees such as account or maintenance fees. 

In summary, banks use the money deposited to fund loans and offer high-interest rates from the interest accrued from loans.