How much should you keep in a savings account?

In most cases, you can save as much or as little as you’d like in a savings account. However, note that some accounts offer special rates or promotions when you keep a minimum balance or charge a penalty if you fall below it. One smart way to save is to follow the 50/30/20 rule : spend about 50% of your income on essentials (i.e., food, rent, bills, etc.), use 30% for discretionary spending (i.e., takeout, clothing, etc.), and put 20% toward your savings.

How do you calculate interest on a savings account?

The interest on a savings account is usually calculated daily by applying the account’s interest rate to its balance, then paid out monthly. Interest is compounded daily, meaning it’s earned on your original deposit as well as any interest you’ve already earned.

What type of savings account earns you the most?

The type of savings accounts that usually earn the most money are high-yield savings accounts (HYSAs) and certificates of deposit (CDs). High-yield accounts offer higher-than-usual interest rates and keep your money accessible, while CDs generally provide even better rates, but require that you lock in your funds for a fixed term.

How do you close a savings account?

The first step to closing a savings account is to take all your money out of the account. You can do this by withdrawing it from an ATM or at a bank branch, or by transferring it to another account. The final step is simply to ask your bank to close the account.

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What is a Savings Account? Pros, Cons, and Key Features

A savings account helps you set money aside for short-term goals or unexpected expenses. Discover how it works and why it matters.

Updated

21 min. read

- A savings account is a safe, secure place to store and grow your money through interest.
- Interest compounds, meaning it’s calculated on your total balance, including interest you’ve already earned.
- A savings account keeps your money easily accessible but may come with fees and a minimum balance requirement.

Ready to start saving? Maybe you’ve got your eye on a vehicle upgrade or are planning to start an emergency fund. Whatever your financial goals might be, parking your hard-earned cash in a savings account is a great way to help you get there.

What is a savings account?

A savings account is a secure bank account that lets you keep funds separate from the money you need for everyday spending. Rather than using them for regular transactions like groceries or rent as you would with a checking account, these accounts are designed to help you save and grow money that you can put toward future goals. They safely store your money while earning interest on your deposits, making them helpful for both short- and long-term saving. 

How does a savings account work?

The way a savings account works is fairly simple. First, you apply for an account at a bank or credit union. Once your application is approved and your account is open, you can make your initial deposit. From there, your savings account earns a percentage of your balance in interest, which is typically calculated daily and paid monthly.

Since they’re intended to encourage saving rather than spending, savings accounts often have limitations on monthly transfers and ATM withdrawals, making them less suitable for day-to-day transactions than checking accounts. Even so, you can still withdraw cash or request a check at a branch or ATM, or transfer money to a checking account, whenever needed. However, it’s best to access these funds only after achieving a savings goal (unless it’s an emergency).

Ways to make a deposit

There are several ways to put money into your savings account:

Deposit cash at a branch or ATM
Deposit a check at a branch, through an ATM, or even via your bank’s mobile app
Transfer funds electronically from another account, either manually or with automatic transfers set up from your checking account

Ways to withdraw your money

Keep in mind that your bank might limit the number of withdrawals or transfers you can make from your savings account per month and may charge fees if you exceed those limits. Regardless of how you interact with the account, it may also come with monthly maintenance fees and potential overdraft charges. With the safety and convenience a savings account provides, the benefits outweigh these costs for many people. 

The beauty of compound interest

Some would say the biggest benefit of using a savings account is that it can grow your money over time through compound interest. Compound interest means you earn interest not only on the money you deposit, but also on the interest your money has already earned.

Interest is added to your balance, so every new calculation is based on a growing amount, creating an advantageous snowball effect. As such, compounding becomes much more powerful over time and with larger balances. The total amount of interest you earn over one year, including compounding, is called the annual percentage yield (APY).

But why do banks pay interest at all? When you deposit money into a savings account, they use it to fund loans, such as mortgages, auto loans, and business loans. The interest they pay you is a portion of what they earn by lending that money out.

Compound interest is also what makes a savings account a good place to build an emergency savings fund.The longer the money stays in the account, the more time it has to grow, and the more you’ll have on hand for that rainy day.

Annual percentage yield (APY) is the true annual rate of return on a savings account, including the impact of compounding interest throughout the year

The key benefits of a savings account

There are several advantages to opening a savings account. Here are some of the biggest ones:

→ You can link savings accounts to your primary checking account

By linking a savings account to your checking account, you can easily transfer money between them. This is helpful if you need to dip into your savings to pay a bill, or when it’s finally time to pay for what you’ve been saving up for.

On the other hand, scheduling regular transfers from your checking account is a great way to consistently build savings. Some banks also let you use your savings account as overdraft protection for your checking account.

→ Savings earn interest

Unlike most checking accounts, any money you put into your savings account typically earns interest. Over time, that interest compounds and helps your balance grow, even if you’re not actively contributing to the account.

→ Your money is insured

Savings accounts are very secure, keeping your money safe1 whether you deposit it digitally or in person. In addition to your bank’s own security measures, deposits are typically insured by the Federal Deposit Insurance Corporation (FDIC). Please visit www.fdic.gov for current FDIC insurance limits.

That means that even if your bank were to fail, your deposits would still be covered up to those limits (which is much safer than keeping cash under your bed!).

→ You can automate your savings

Sometimes we all need a little nudge to put money aside. The good news is that automation makes it easy. You can:

Schedule regular automatic transfers from your checking account
Set up automatic deposits from a portion of each paycheck (if available)

When life gets busy, this makes it possible to build your savings without lifting a finger.

→ Save for short or long-term goals

Whether you’re saving for a weekend getaway or a longer-term goal like a vehicle purchase, opening a savings account is a good first step. It helps you make steady progress toward those goals by separating your savings from everyday spending while still keeping them accessible.

If you decide to open a BMO savings account, the included Savings Goals feature makes it easy to plan ahead and keep track of the money you’re saving.

The limitations of a savings account

Savings accounts have many strengths, but they also have a few limitations you’ll want to be aware of before you decide on opening one:

Easy access can make early withdrawals tempting

Since you can easily take out money from a savings account, it can be tempting to dip into your savings for non-essential purchases. As a result, your savings goals can get further out of reach.

Some accounts have minimum balances

Depending on your financial institution and account choice, you might need to maintain a minimum balance to keep the account open, avoid penalties, or qualify for a certain interest rate. Do your research and ensure you can afford the account’s minimum balance requirement before signing on any dotted lines.

Interest rates vary and fluctuate

Not all savings accounts are created equally. Interest rates vary widely between banks and account types. Rates can also change over time, depending on market conditions.

Let’s take a side-by-side look at key factors to consider:

Pros	Cons
Ideal for financial goalsSavings accounts are great for building an emergency fund or saving for upcoming purchases	Not suited for retirement savingsThe returns generated on a savings account are usually too low for long-term retirement needs.
Low-risk and secureAt FDIC-insured banks, deposits are automatically insured up to applicable limits. You won’t lose money from market swings.	May not beat inflationIf inflation is higher than your interest rate, the purchasing power of your savings can shrink over time.
Easy access to fundsMoney in a savings account is considered liquid. You can usually access it quickly through transfers, ATMs, or in-branch withdrawals.	Lower gains than other optionsThe interest rates offered by standard savings accounts are often lower than other options like money market accounts or stocks.
Compounding interestYou earn interest on your total balance, meaning your initial deposit plus the interest you’ve already earned.	Possible feesSome savings accounts charge a monthly maintenance fee, excess transaction, or overdraft fees.

What types of savings accounts are available in the U.S.?

Most U.S. banks will have a few different savings accounts to choose from. These can include:

Traditional savings accounts:

Great for new savers, these are basic deposit accounts offered by banks and credit unions. They provide easy access to funds, often have minimal fees, and allow you to manage your banking in person with a banker or via telephone banking.

High-yield savings accounts (HYSAs):

Designed to offer higher interest rates than traditional savings accounts, HYSAs provide a secure way to grow savings. Because they’re usually offered by online banks, these accounts also generally don’t include access to in‑person branch services.

Child or teen savings accounts:

These are usually opened by a parent or guardian for their dependent to use, and withdrawals may require parental consent. They’re a great way to teach kids the value of money.

Student savings accounts:

These accounts are designed to help students save up for college tuition, books, living expenses, and other student costs. Some banks may waive or lower any associated fees to make it easier for students to get ahead.

Money market accounts

Money market accounts may provide ATM access and limited check-writing while earning interest. They often offer high interest rates (comparable to HYSAs), but tend to require higher minimum balances.

Certificates of deposit (CDs)

As fixed-term savings products, CDs offer a guaranteed interest rate for a set period, typically between six months and five years. Their rates tend to be higher than those of traditional savings accounts, but early withdrawals usually incur penalties.

Savings accounts offered at BMO

→ BMO Savings Builder

BMO Savings Builder is an account designed for short- or long-term savings.

No monthly maintenance fee
Easy access to your savings
Earn an extra $5 every month you grow your balance by $200 or more in the first year you have the account2
BMO Savings Goals feature to set and track a personalized savings goal

→ Certificates of deposit (CDs)

Certificates of deposit accounts are designed for longer-term savings. Growth is guaranteed and your funds are protected in a market downturn, but your principal is locked in for a fixed term.

No monthly maintenance fee
Competitive rates and terms
CD interest rate is locked in for the length of your term

→ BMO Growth Money Market

A BMO Growth Money Market account offers competitive interest rates with flexible access to your money.

Higher interest rates than most traditional Savings accounts
$10 monthly maintenance fee
Convenient access

What’s the difference between a savings account and checking account?

The main difference between savings accounts and checking accounts comes down to purpose, access to your money, and interest. Savings accounts are designed to safely store and grow your funds, while checking accounts are for everyday spending and managing household finances.

Many savings accounts also put a limit on monthly withdrawals, while checking accounts usually offer unlimited access to your money. Not to mention, savings accounts usually offer a higher interest rate to encourage you to save your money over time, while most basic checking accounts don’t offer any interest at all.

If you’d like to set up a savings account at BMO, there are a few ways to do it. You can open an account:

In person at a BMO branch
Over the phone at 1-800-546-6101
By applying online

You’ll be asked to provide:

Personal information, like your phone number, birthday, residential address, and email
Your Social Security number
A routing and account number so you can start making deposits
Proof of U.S. citizenship or status as a U.S. resident alien

If you are neither a U.S. citizen or resident alien, you can still apply for an account by visiting a branch or calling 1-888-340-2265

Whether you’re saving up for a vacation, kitchen renovation, or new car, a savings account is a great way to work toward your financial goals. Your money is held safe and sound1, deposits earn compounding interest, and you can access your funds at any time. If you’re ready to get going, check out BMO's savings account options.

Savings account FAQs

In most cases, you can save as much or as little as you’d like in a savings account. However, note that some accounts offer special rates or promotions when you keep a minimum balance or charge a penalty if you fall below it.
One smart way to save is to follow the 50/30/20 rule: spend about 50% of your income on essentials (i.e., food, rent, bills, etc.), use 30% for discretionary spending (i.e., takeout, clothing, etc.), and put 20% toward your savings.
The interest on a savings account is usually calculated daily by applying the account’s interest rate to its balance, then paid out monthly. Interest is compounded daily, meaning it’s earned on your original deposit as well as any interest you’ve already earned.
The type of savings accounts that usually earn the most money are high-yield savings accounts (HYSAs) and certificates of deposit (CDs). High-yield accounts offer higher-than-usual interest rates and keep your money accessible, while CDs generally provide even better rates, but require that you lock in your funds for a fixed term.
The first step to closing a savings account is to take all your money out of the account. You can do this by withdrawing it from an ATM or at a bank branch, or by transferring it to another account. The final step is simply to ask your bank to close the account.

Ready to grow your savings?

We make it easy to save on a budget. Explore our options or visit a branch to learn more.

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Checking vs. savings accounts: what you should know

Banks offer different types of bank accounts. Find out the main differences between checking vs. savings accounts and how they work together.

What is a checking account?

Checking accounts are used for a wide range of transactions and can help you manage your income and expenses. Find out what you should know.

Certificate of Deposits (CDs) Explained in 2026

We examine the CD, its benefits, potential limitations, and help you determine how the tool fits into your total savings portfolio.

Have questions?

¹Visit the BMO Security Center for details.

²For every month your Savings Builder account balance grows by at least $200, we will credit the account with a $5 savings reward within 5 calendar days after the end of the month. To calculate if your balance has grown by $200, we will compare the Ledger Balance on the last Business Day of the previous month to the Ledger Balance on the last Business Day of the current month. Interest and savings reward payments will not count towards your balance growth. Tip: Deposits made on weekends and holidays will not be processed until the next Business Day. To ensure your deposit is counted for the current month, avoid scheduling your recurring transfer or deposits toward the end of the month.

Your account is eligible for 12 savings rewards beginning with the month your account is opened. The first savings reward is based on your savings growth from the Business Day the account is opened through the last Business Day of that month. If your initial deposit is not received until the month after account opening, the account will only be eligible for 11 savings rewards.

Your account must be open when the savings rewards are paid. Savings rewards will be reported to the IRS for tax purposes and you are responsible for any applicable taxes.

Exclusions:

Savings rewards are available for new accounts only. An account switched into Savings Builder from a different product is not eligible for savings rewards.
Savings rewards are limited to one Savings Builder account per customer as the Primary Account Owner. Only your first account opened is eligible for savings rewards.
You are not eligible to receive savings rewards if you have previously opened a Statement Savings account between February 3, 2020 and October 18, 2021 and participated in the Statement Savings account – Savings Rewards offer.

Minimum opening deposit of $25 is required for BMO Savings Builder accounts. Savings Builder is a variable rate account. Interest rates and Annual Percentage Yields (APYs) may change daily after the account is open. Interest rates and APYs offered within two or more consecutive tiers may be the same. In this case, multiple tiers will be shown as a single tier. The following collected balance tiers and corresponding APYs for Savings Builder are effective as of January 29, 2026, and are subject to change at our discretion at any time: 0.01% for all balances. Interest is calculated on the entire collected balance daily at the rate in effect for that balance tier. You must maintain the required minimum collected balance for each tier in order to earn the APYs disclosed. A periodic rate is applied on the collected balance in the account daily. Interest is compounded daily on the collected balance and credited to the account monthly on the statement period date. Checks you deposit into your account begin to earn interest on the Business Day we receive credit for them. Fees and withdrawals may reduce earnings. For account and fee information or current interest rates, vist bmo.com.Explore transaction limitations.

What is a Savings Account? Pros, Cons, and Key Features

What is a savings account?