Savings Account vs. Transaction Account + Best Banks & Best High-Yield Savings Account Rates

What is Savings Account

A savings account is a bank account at a retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn.
Traditionally, transactions on savings accounts were widely recorded in a passbook, and were sometimes called passbook savings accounts, and bank statements were not provided; however, currently such transactions are commonly recorded electronically and accessible online.

What is a savings account best for?

A savings account is an interest-bearing deposit account held at a bank or other financial institution. Though these accounts typically pay a modest interest rate, their safety and reliability make them a great option for parking cash you want available for short-term needs.

What is Transaction account or checking account

A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution.

It is available to the account owner “on demand” and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques (checks) and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms, they are considered as cash.

Why you need a savings account

A savings account is a good place to keep money for a later date, separate from everyday spending cash, because of their safety, reliability and liquidity. These accounts are a great place for your emergency fund or savings for shorter-term goals, like a vacation or home repair.

Beyond quick access to your cash when you need it, savings accounts often offer higher interest rates than checking accounts. You might even find some savings accounts with a higher APY than money market accounts. The average APY on savings accounts is just 0.06 percent, but you can find high-yield savings accounts paying around 0.6 percent.

Finally, there are many opportunities to open a savings account with low fees. You can often find simple options to avoid pesky maintenance fees.

 

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Savings Account Advantages

Savings accounts offer you a place to put your money that is separate from your everyday banking needs, allowing you to stash money for a rainy day or earmark funds to achieve a big savings goal. What’s more, the bank’s security measures, along with federal protection against bank failures provided by the Federal Deposit Insurance Corporation (FDIC), will keep your money safer than it would be under your mattress or in your sock drawer.4

Beyond keeping your funds safe, savings accounts also earn interest, so it pays to keep any unneeded funds in a savings account instead of accumulating cash in your checking account, where it will likely earn little or nothing. At the same time, your access to funds in a savings account will remain extremely liquid, unlike certificates of deposit, which impose a hefty penalty if you withdraw your funds too soon.

Holding a savings account at the same institution as your primary checking account can offer several convenience and efficiency benefits. Since transfers between accounts at the same institution are usually instantaneous, deposits or withdrawals to your savings account from your checking account will take effect right away. This makes it easy to transfer excess cash from your checking account and have it immediately earn interest—or transfer money the other way if you need to cover a large checking transaction.

Many institutions allow you to open more than one savings account, which can be handy if you want to keep track of your savings progress on multiple goals. For instance, you could have one savings account to save for a big trip while a separate one holds surplus cash from your checking account.

Types of Savings Accounts

Distinguishing between different savings accounts means looking at their features, where you can open them and what they’re designed to do.

As you compare different savings accounts, it can help to ask these kinds of questions:

• Is this account designed for any specific purpose or goal?
• How much interest does this account earn?
• Are there minimum deposit requirements or minimum balance requirements to meet?
• Does the bank charge any fees for this type of savings account?
• Are there any tax benefits or advantages associated with this savings account?
• How accessible is the money in the account?
• Will I pay any penalties for withdrawing money from the account?

Doing this kind of research can help you decide which types of savings accounts to have. From there, you can choose where to open them and how to fund them.

Traditional or Regular Savings Account

Good for: People who need to save money for the short or long term and aren’t as concerned about getting the best interest rate, expressed as the annual percentage yield (APY).

High-Yield Savings Account

Good for: People who want to earn a more competitive rate on savings while minimizing fees.

High-yield savings accounts—typically found at online banks, neobanks and online credit unions—are savings accounts that offer a higher APY compared to regular savings accounts. This is one of the best types of savings accounts to maximize your money’s growth.

Money Market Accounts

Good for: People who want to earn interest on savings while having more options for accessing their money.

Money market accounts (MMAs) combine features of a regular savings account with features of a checking account. You can find these accounts at brick-and-mortar banks, online banks and credit unions.

CD Account

Good for: People who want to earn competitive rates and won’t need to access their savings right away.

Certificates of deposit (CDs) are time deposits, meaning you agree to leave your money in the account for a set period. During that time, your money earns interest and, when the CD matures, you typically can withdraw your savings or roll it into a new CD. That sets these accounts apart from other types of savings accounts since there’s a time factor at work.

Cash Management Account

Good for: People who want to keep cash available to invest in their brokerage or retirement account.

Cash management accounts are different from other types of savings accounts because they’re not specifically designed for saving. Instead, these accounts let you hold cash you may plan to invest in a taxable brokerage account or a retirement account.

Specialty Savings Account

Good for: People who want accounts tailored to specific savings goals.

Specialty savings accounts are designed to help you reach specific savings goals, rather than being a catch-all for money you don’t plan to spend. And in some cases, they can be intended for a specific type of person, rather than a savings goal.

Savings vs. Checking Accounts: Which One Should You Use?

The main difference between the two is that savings accounts are used for growing and saving your money. Checking accounts are used for everyday expenses. 

Saving accounts are better for storing your money. In most saving accounts your money accrues interest but at the same time limiting how much money you can take out. The only way to access money in most cases is either from ATMs or online transfers. 

Checking accounts are better for spending your money. These are typically used for everyday spending when shopping, buying gas, and paying your bills without a withdrawal limit. These accounts are designed to give you access to your money using checks, debit cards, and digital payment platforms like Apple Pay. Checking accounts sometimes but generally doesn’t allow for you to earn interest.

How to open a savings account

Depending on the institution, you could apply online, by phone, in person or even by mailing an application. You’ll need to provide personal information and a source of deposit. 

The bank will likely ask for your name, date of birth, Social Security number, address and contact information among other details. Be prepared to hand over your government-issued ID (or send a scan of it for online bank accounts.) If you’re applying for a joint account, you’ll also have to prove the identity of the other applicant.

Check the account rate history

One thing to look out for is an online savings account with a short history. This is especially important when interest rates are rising. 

Instead of raising the interest rate of one savings account, a few online banks have regularly created new savings accounts with flashy promotional rates to attract new customers but that will end after a couple of months. If a bank’s high-interest savings account has a short history while old savings accounts held by existing customers are kept below competitive rates, that’s a sign the online bank may be using this tactic. Opening an account at this bank may not impact you immediately, but down the road, you may miss out on higher savings account rates. 

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Unless the account disclosures contain specific time guarantees, banks are free to adjust rates on checking and savings accounts. Therefore, before opening an account, review its account rate history to ensure it has a record of remaining competitive over multiple years.

 

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What Type of Account Is a Transaction Account? 

A common type of transaction account is a checking account. These accounts are ideal for covering day-to-day spending, like grocery bills, gas station purchases and doctor’s visits. Savings accounts are non-transaction accounts because they earn interest and are designed to hold money on a long-term basis.

What Is an Example of a Transaction Account? 

A checking account opened at a physical bank, credit union or online bank is an example of a transaction account. Many individuals fund these accounts through direct deposits and mobile transfers. Depositors can move money in and out of their accounts using wire transfers, ACH transfers, ATM cards and debit cards.

What Is a Transaction Deposit Account? 

The Federal Reserve uses the term “transaction deposit” to describe accounts for which an individual can withdraw money or make payments. While these accounts do not typically earn interest, they generally have security features that are designed to keep cash secure.

What Are the Benefits of a Transaction Account?

Because benefits vary depending on the financial institution, it is crucial to do research before opening a transaction account. Many people prefer banks or credit unions that offer features like online banking, electronic statements and mobile banking access. 

Some transaction accounts offer low monthly fees and manageable opening balance requirements. Some banks reduce monthly costs for customers who set up direct deposits, and institutions may offer extra benefits such as ATM fee refunds and free checks.

3 Signs You’re Keeping Too Much Money in Your Checking Account

Your finances have changed

This one hits close to home. I made some pretty substantial changes to my finances in 2022. So right now I am trying to get my feet under me as far as what my cash inflow and outflow situation will look like going forward. In addition to paying my bills (which are now much reduced thanks to getting out of debt), I’m also socking away money for freelance taxes and to contribute to my big goal of buying a house.

You don’t have a big expense coming up

Maybe you’ve gotten in the habit of keeping extra money in your checking to cover planned bills. If you know you’re going to be buying, say, new tires for your car next month, it might be easier to just leave that money in place until you need it. But have a look at your finances and see if you do in fact have just such a bill or expense to pay soon. If you don’t, and you’ve got an excess of cash in your checking, it’s a good idea to move some of it over to your high-yield savings account.

You have more than one or two months’ worth of expenses there

How much money should you actually keep in your checking? This is a question whose answer is different for everybody. Many experts recommend enough money to cover a month or two worth of expenses, as well as maybe a little buffer, just in case. Your mileage may vary, however. Consider a few things when deciding how to manage your checking account:

• How often do you get paid? If you only get paid biweekly or even less frequently, you may want to keep an amount of money in the range mentioned above. But if you have money coming in every week, you may not have to plan too far ahead when it comes to paying your bills out of your checking.
• What are your real monthly expenses? A budget can help you see, in real numbers, how much of your income is going to bills and how much of it you can save or invest via a brokerage or retirement account.

Move extra money into your savings account to earn interest

If you’re reading this and realize that you probably have way too much money in your checking account, consider transferring some extra cash to your savings account.

Doing this allows you to keep your savings separate and can help you avoid spending it all. You can also earn interest on your savings, which is like getting free money. However, don’t let all your extra money sit in your savings account — especially if you’ve been neglecting other financial goals, like building an emergency fund.

An emergency fund is your financial safety net

It’s a good idea to keep enough money to cover three to six months of living expenses in your savings account as an emergency fund in case your finances change. If you’re unsure how much emergency savings you need, our emergency fund calculator can help guide you.

Once you reach your emergency fund savings goals, put your extra money to good use. Sort out an investing and retirement plan that works for you and make your goals happen.

 

Which bank has best savings account?

The top rate you can currently earn from a nationally available savings account is 4.00% annual percentage yield (APY), offered by CFG Bank. That’s almost 17 times the FDIC’s national average for savings accounts of 0.24% APY, and is just one of the top rates you can find in our rankings below.
Culled from our weekly rate research on more than 200 banks and credit unions that offer nationwide savings accounts, even the 10th-best rate on the list pays 3.60% APY. Below you’ll find featured savings account rates available from our partners, followed by our complete ranking of the best savings account rates nationwide.

Best High-Yield Savings Account Rates

CFG Bank – 4.00% APY

CFG Bank is best for savers who want an online bank offering decent to very competitive interest rates and don’t need broad ATM access. If you live near one of the two branch locations in Maryland, you will have access to in-person banking.

UFB Direct – 3.91% APY

UFB Direct, a division of online institution Axos Bank, offers a savings account with a high rate, no opening minimums and no monthly fee. The bank also has a high-yield money market account that has a strong rate, but it requires a minimum of $5,000 to avoid a monthly fee.

Best for: Digital banking customers who want a savings account or money market account with strong APYs and don’t need a checking account at the same bank.

MySavingsDirect – 3.90% APY

MySavingsDirect is an online division of New York-based Emigrant Bank. As an online bank, MySavingsDirect may offer more competitive rates than your local brick-and-mortar bank. But while MySavingsDirect offers fairly competitive interest rates, the bank products and services are limited, making it a good choice for only the right individuals.

Bask Bank – 3.85% APY

Bask Bank is best for consumers looking for a savings account that earns a competitive yield, requires no minimum balance and charges no monthly maintenance fee.

BrioDirect – 3.75% APY

BrioDirect is best for consumers looking for an online bank that offers a competitive yield on a savings account, money market account and CDs.
BrioDirect is an online bank that offers multiple CDs, a money market account, a checking account and a savings account.

Fitness Bank – 3.75% APY*

Fitness Bank is for active individuals who like online banking and are looking for something out of the ordinary.
With its claim as the first active lifestyle bank in America, Fitness Bank is taking a different approach to online banking. With interest rate tiers determined by reaching fitness goals, the more active you are, the higher the rewards with Fitness Bank. And, yes, Fitness Bank is a real bank that is insured by the Federal Deposit Insurance Corporation (FDIC) as a division of Affinity Bank. This in-depth review will help you decide if a Fitness Bank account is right for you.

TAB Bank – 3.64% APY

TAB Bank has its roots in the trucking industry, but anyone can apply for its rewards spending and competitive savings accounts. The spending account has a unique feature that rewards purchases with stock. There are no monthly fees on its basic accounts.

Best for: Customers who are looking for high-yield savings options or rewards debit cards with stock perks, or both, and who don’t mind an account that doesn’t allow overdrafts.

Valley Direct – 3.60% APY

Valley Direct was founded in 1927 and is headquartered in Waynen, New Jersey. They have several checking and savings accounts available. Money Market accounts are available and differ from the savings accounts with regard to account requirements.

They offer a competitive interest rate that, along with its money market account offering, targets consumers looking to maintain liquidity.
To earn Valley Direct’s competitive rate, simply meet all the requirements. Once you qualify, you will start earning the competitive rate.

CIT Bank – 3.60% APY

If you’re sick of paying high fees for banking services, CIT Bank aims to be your go-to online banking solution. While they don’t have local branches you can walk into, they do offer easy-to-open accounts with low opening deposit requirements. CIT Bank is great for people who like the convenience of using your phone or computer to make banking transactions. Customers can access their accounts from almost anywhere 24 hours a day.

CIT Bank, N.A., which is part of First Citizens BancShares, Inc., focuses on offering some of the most competitive interest rates on the market.

First Foundation Bank – 3.60% APY

First Foundation Bank is a regional bank that offers a high-yield online savings account and several other account options. The Irvine, California-based bank has 31 branch locations in California, Florida, Nevada, Texas, and Hawaii. Keep reading our full First Foundation Bank review to learn more about its account offerings to see if it’s right for you.

First Foundation Bank offers a few savings accounts. One option — an online savings account — is an excellent place to keep an emergency fund. 

Popular Direct – 3.56% APY

Popular Direct serves mobile and online banking customers across the country and pays competitive rates.
Popular Direct offers one of the highest APYs available with a $5,000 minimum deposit. While the $5,000 minimum deposit is higher than many other banks, this is one of the highest APYs nationwide.

Popular Direct doesn’t have an ATM card available for its savings account, so you will need to make an external transfer to access the funds if needed. Additionally, you can make deposits via mobile check deposit with your mobile device.

My Banking Direct – 3.55% APY

My Banking Direct is a service offered by New York Community Bank, which dates all the way back to 1859, so it’s safe to say it has an established history. 

New York Community Bank boasts $59.5 billion in total assets and its subsidiary, My Banking Direct, was specifically created to offer higher APYs. They do this by eliminating the overhead associated with maintaining bank branches. 
What Does It Offer?

My Banking Direct can help you take your savings to the next level. 
High-Yield Savings Account

The high-yield savings account offered by My Banking Direct comes with an impressive APY. As of September 2022, My Banking Direct’s high-yield savings account offers a 2.20% APY. 

Vio Bank – 3.52% APY

Vio Bank has a competitive interest rate and reasonable opening minimum on its money market savings account and offers a suite of certificates of deposit. But the bank, the internet division of the Oklahoma-based MidFirst Bank, doesn’t offer an ATM or branch network, so it’s best for setting aside cash to let it grow.

Best for: Digital banking customers who want a solid interest rate, don’t need checking services under the same roof and use the iOS app.

DollarSavingsDirect – 3.50% APY

DollarSavingsDirect is an online-only division of Emigrant Bank, an institution founded in 1850 by Irish emigrants as a mutual savings bank. Emigrant Bank currently holds $6.4 billion in assets, according to the FDIC.

As an online-only savings bank, DollarSavingsDirect can offer an impressive APY on its products, although its menu of products is relatively limited.

Salem Five Direct – 3.50% APY

Salem Five Direct is best for savers who are comfortable banking online and who are seeking a competitive rate.
The eOne Savings account offers savers a competitive yield and requires just $10 to open. There are no monthly fees either.

The account isn’t available to everyone. To be eligible for an eOne Savings account, you must apply online not already have a Salem Five Bank checking or savings account, excluding the eOne Checking account.

Bread Savings – 3.50% APY

Bread Savings (formerly Comenity Direct) offers a high-yield savings account and certificates of deposit but no checking accounts. The high-yield savings account offers a solid 3.50% APY and no monthly fees, and the account requires a $100 minimum deposit to open. Bread Savings™️ CDs also offer solid APYs, with a minimum opening balance of $1,500. There are no monthly fees for CDs, but an early withdrawal penalty will apply if a customer withdraws funds before the term length of the CD is up.

Bread Savings is an online-only bank, so it doesn’t have any branches, but its customer service phone line is available seven days a week. Since the high-yield savings account isn’t designed with frequent withdrawals in mind, the only way customers can withdraw cash is by transferring to a linked account.

Tech migration may mean longer customer wait times: In June 2022, Bread Financial migrated its core processing technology to a new third-party provider. There has been an influx of customer service calls, and as a result, some customers have been experiencing longer-than-normal hold times.

Best if: You want an online-only account with a solid APY.

Ivy Bank – 3.50% APY

Available nationwide, Ivy Bank High-Yield Savings is offering a staggering 3.50% APY Rate. Continue reading below to learn everything you need to know about Ivy Bank.
Backed by a bank with over 187 years of experience and by the strength and stability of Cambridge Savings Bank, a trusted financial institution based in the greater Boston area, Ivy Bank was created with the goal of helping to improve your financial well-being by offering user-friendly higher-interest rate products, exceptional digital experiences, and personalized service.

BankPurely – 3.50% APY

BankPurely is a financial institution created for environmentally conscious consumers.
BankPurely’s SavingsPurely savings account pays an APY that’s above the national average, though consumers searching for more competitive yields can easily find higher rates elsewhere. The account requires only $100 to open, and it doesn’t charge a monthly fee.

 

Alternatives to regular savings accounts

A regular savings account isn’t your only option for earning more interest on your money. You could also look into a money market account. These accounts pay interest, just like savings accounts, but they also often come with debit cards or the ability to write checks. The catch is that they also tend to have higher minimum balance requirements.

If you don’t expect to withdraw your money for several months, or have a large amount to deposit — say, $10,000 or more — you could consider a certificate of deposit. CDs usually offer better rates than regular savings accounts because they require you to leave your money deposited for a specified amount of time. They also often have higher minimum deposits.

Premium checking accounts

Some banks offer premium checking accounts in addition to basic checking accounts for customers with enough assets to qualify for one. These accounts come with a variety of perks, ranging from ATM reimbursements to discounted mortgage rates.