What they are: Savings accounts are basic interest-paying deposit accounts.
Pros and cons of Savings Accounts
On the plus side, savings accounts offer high liquidity at low risk.
As with other deposit products, the main risk for holders of savings accounts is that their money will diminish in purchasing power as inflation takes its toll. This is especially true of traditional passbook savings accounts, which often sport a yield that falls far short of other savings vehicles, such as CDs.
Higher yields sometimes can be found online or in high-interest savings products offered by credit unions and larger banks. Still, unlike CDs, yield on savings accounts can change quickly and without notice.Where to find them: Banks, credit unions and other institutions offer savings accounts.
Risk: Savings accounts are insured by the Federal Deposit Insurance Corp. or the National Credit Union Administration (for credit unions), meaning they can’t lose principal on account balances of $250,000 or less through Dec. 31, 2013. On Jan. 1, 2014, the standard insurance amount is scheduled to return to $100,000.
Liquidity: High liquidity is the principal advantage savings accounts have over certificates of deposit. Under the Federal Reserve’s Regulation D, account holders may make up to six withdrawals or transfers from a savings account each month. Banks may impose fees for exceeding an arbitrary limit for withdrawals, or for failing to meet a minimum account balance in a given month. However, savings accounts remain one of the most liquid interest-bearing vehicles.