Even though savings accounts are one of the most common financial tools, they still spark a lot of confusion — from how much you should keep in one to how much interest you can actually earn.
To clear things up, we dug into the most common questions people search on Google and answered them in plain English. Here’s what savers are really wondering, and what you need to know to make the most out of your savings account.
Let’s start with the basics. A savings account is a type of deposit account that lets you store money securely while earning interest. They can be found at most banks and credit unions.
The interest you earn in a savings account is represented as the annual percentage yield (APY), which is the total amount of interest you would earn in one year when factoring in compound interest. The higher the APY, the more interest you earn on your balance.
Learn more: What is a savings account and how does it work?
Yes, you must pay taxes on the interest you generate in a savings account, since interest earnings are considered taxable income. Your bank will typically issue a Form 1099-INT if you earn $10 or more in interest for the year. However, even if you don’t receive this form, you’re still expected to report all interest income on your tax return.
The good news: You are not taxed on the principal balance, because you’ve already paid taxes on that money before depositing it into your savings account.
Learn more: Do you have to pay taxes on your savings account?
The amount of interest you earn on your savings depends on a few factors, including the interest rate, compounding frequency, and whether you make additional contributions.
Let’s say you have $10,000 in a savings account that earns 0.4% APY (the national average). You let your money sit in the account for one year and don’t make any additional contributions. In this case, you’d earn about $40 in interest, bringing your total balance to $10,040 after one year.
Now let’s say you put that $10,000 into a high-yield savings account that earns 4% APY. After one year (assuming no additional contributions), you’d earn about $407 in interest for a total balance of $10,407.
Keep in mind that savings account rates are variable, meaning they can change at any time. So, the rate you’re earning today could go up or down in the future at the discretion of your bank. Additionally, fees can impact your actual earnings.
Learn more: How to calculate interest on a savings account
When it comes to the amount of money you should keep in a savings account, there’s no one-size-fits-all number. It’s really dependent on your unique financial situation and goals.
Generally, experts suggest keeping at least three to six months’ worth of essential expenses in an easily accessible savings account. But ultimately, you can keep as little as your bank’s minimum or as much as $250,000 (the limit for standard FDIC insurance). Keeping more than $250,000 puts those funds at risk if the bank ever fails.
Learn more: How much money should you keep in a savings account?
Yes — your savings account is your money, and you can generally access it any time. However, it’s important to keep an eye on withdrawal limits.
Before 2020, Federal Regulation D capped “convenient” withdrawals from savings accounts at six per month. That rule has since been lifted, but many banks still enforce their own limits and may charge fees if you exceed them.
This doesn’t prevent you from accessing your money; it just means you may need to be mindful of how often you transfer or withdraw funds to avoid fees.
Learn more: Savings account withdrawal limits: What you need to know
There’s no one bank that offers the best savings account. That’s because “the best” savings account for you depends on what you want to get out of it. Maybe you’re looking to earn the highest interest rate possible. Or perhaps you’re looking for an account with no minimum balance requirement. Maybe avoiding fees is your top concern.
In general, it’s best to choose an account that offers a mix of these benefits — high rates, low fees, and added perks to help you get the most value from your account.
Online banks — such as Ally, SoFi, and Discover — are a great place to start your search for savings accounts. Credit unions also tend to have solid options.
Learn more: The 10 best high-yield savings accounts available today
Yes — you can technically have as many savings accounts as you want, though there are some pros and cons of having multiple accounts to consider.
One of the biggest advantages is the ability to separate your funds and track progress toward multiple savings goals, such as building an emergency fund, saving for a down payment on a home, or setting aside money for a big vacation. Multiple accounts can also help you take advantage of higher APYs, bonuses, or special promotions from different banks. And for those with larger balances, splitting savings across different financial institutions can ensure all of your money is protected by FDIC insurance coverage.
However, there are some drawbacks. Managing several accounts means more logins, more statements, and more mental bandwidth needed to manage all of your accounts. Additionally, some accounts may charge monthly fees, inactivity fees, or require minimum balances — costs that can eat into your interest if you’re not careful. Plus, earning interest across multiple bank accounts means receiving multiple 1099-INT forms at tax time, which can add extra paperwork.
Learn more: How to use multiple accounts to achieve your savings goals
The 50/30/20 rule is a budgeting strategy in which you set aside 50% of your after-tax income toward needs, 30% toward wants, and 20% toward savings (which includes making extra payments toward debts).
This method helps simplify the budgeting process and ensures that you set aside enough money for savings while meeting your other obligations.
Learn more: Struggle with budgeting? Following the 50/30/20 rule could be your solution.
Yes — a routing number is a nine-digit code that identifies your bank or credit union. While your savings and checking accounts will have different account numbers, they typically share the same routing number if they’re at the same institution.
You can locate your routing number by referencing one of your paper checks, logging onto your online account, or checking your financial institution’s website.
Learn more: How do I find my bank account number?
As long as your savings account is held at an FDIC-insured bank, your deposits are protected up to $250,000 per depositor, per institution, per ownership category.
Most banks clearly display their FDIC status on their website, but you can also verify it using the FDIC’s BankFind tool.
Learn more: What is the FDIC, and how does it work?
