Opening a savings account lets you separate some of your income from your everyday spending, and tucks it away in a safe place until you need to access the funds. It's a win-win for your financial future. Understanding the many key terms you'll hear when opening and managing your account will ensure your money works harder so you can meet your savings goals faster.
1. Account Balance
A savings account balance is the net amount of funds available in your account after any credits or debits have been posted but before any pending charges are posted. You can typically access your account balance by visiting your bank in person, through an online app or by phone or email.
2. ACH Transfer
An ACH transfer is a direct electronic payment or deposit made using the Automated Clearing House network. Financial institutions use ACH transfers to either pay funds into an account or pull funds from an account—for example, depositing funds into a consumer's account for a tax refund or withdrawing funds to pay a bill.
3. Annual Percentage Yield (APY)
Annual Percentage Yield (APY) is the rate you actually earn in a year on your savings account, taking into account the effect of compounding interest. APY rates can fluctuate with the federal funds rate, so when the Federal Reserve raises or lowers interest rates, the APY on your savings account may increase or decrease. Find out how your APY is calculated.
4. ATM Network
Automated teller machines (ATMs) allow you to complete most bank transactions—deposits, withdrawals and transfers, for instance—without the need to visit a branch. If you have a debit card or credit card, you can access cash at most ATMs in the U.S. and abroad. However, if you access an out-of-network ATM to make a deposit or withdrawal, you may have to pay a fee.
5. Compounding Interest
Earning interest on both the principal you deposit into your savings account and the interest that money earns is called compounding interest. It's essentially earning interest on interest. Savings accounts compound interest daily, weekly or monthly. The more frequently interest is compounded, the faster your savings can grow.
6. Early Withdrawal Penalty
Your financial institution may charge a penalty if you withdraw money from a time-deposit savings account, such as a certificate of deposit (CD), before it matures (the term ends). The penalty varies but can be as much as one year's worth of interest.
7. FDIC Insurance
In the event that a bank insured by the Federal Deposit Insurance Corporation (FDIC) fails, the FDIC protects bank depositors against the loss of their deposits up to $250,000 per account holder. FDIC insurance is automatic for any deposit account opened at an FDIC-insured bank.
8. NCUA Insurance
Similar to FDIC insurance offered by banks, all deposits at federally insured credit unions are protected by the National Credit Union Share Insurance Fund up to at least $250,000 per individual depositor, per financial institution.
9. High-Yield Account
A high-yield savings account is essentially the same as a standard savings account, except that it offers a higher APY, allowing your money to grow faster. As of March 2023, APYs on some high-yield savings accounts topped 4%, compared with the national average of 0.37% for a traditional savings account. As with standard savings accounts, the APY on high-yield savings accounts is variable, meaning it can go up or down in accordance with the federal funds rate.
10. Maturity Date
The maturity date on a time deposit account, such as a CD, is the point when the term ends and you can withdraw your funds without incurring a penalty. The money you receive at the end of your term includes your initial deposit plus any interest earned. Traditional and high-yield savings accounts do not have maturity dates.
11. Minimum Balance
Your minimum balance is the amount of money needed to open or maintain your savings account without incurring a fee. For instance, if your bank requires a $100 minimum balance to keep your savings account open and you fall below that amount, you might be charged a fee. These fees can be as much as $9 or more for interest-yielding accounts. Not all financial institutions or accounts have a minimum deposit requirement or charge this fee.
12. Savings Account
A savings account is a place to set aside money for future expenses. Usually savings accounts earn interest. You may use a savings account to build an emergency fund, meet your short-term goals or save for the future. Savings accounts can take on several forms, such as traditional savings accounts, high-yield savings accounts, CDs, money market accounts, employer-sponsored emergency savings accounts (ESAs), ABLE accounts and more. Other places to set aside money for the future include 401(k)s, individual retirement accounts and health savings accounts (HSAs). Where you stash your money depends on your individual needs and preferences.
13. Wire Transfer
Somewhat like an ACH transfer, wire transfers also move money from one bank account to another. However, instead of over the ACH network, money is typically moved manually by a bank employee and can happen immediately. The exchange and also be made differently in terms of cost, speed and security.