What is a savings account? A beginner’s guide to saving and growing money

So, what is a savings account? Think of it as a safe place to store and grow your money over time, where you earn a modest interest without the risks associated with investing. Savings accounts are designed to help people save with confidence, keeping funds accessible for emergencies or future goals, all while accumulating interest that grows your balance steadily. For beginners and experienced savers alike, a savings account provides both security and peace of mind, making it a popular choice for building financial stability.

As you explore your options, you’ll find there are many types of savings accounts with varying features. Some accounts, like high-yield savings accounts, offer higher interest rates on savings accounts, while others prioritize flexibility and accessibility.

Ready to dive deeper? This guide will walk you through how savings accounts work, the features of savings accounts, and everything you need to know to choose the best savings account for your needs.

How savings accounts work

Savings accounts are designed to hold and grow your money safely over time, allowing you to earn savings account interest while keeping funds accessible when you need them. Here’s how they operate:

1. Deposits and withdrawals: Savings accounts differ from checking accounts by being intended for fewer monthly transactions, which encourages consistent saving. Deposits are typically unlimited, but withdrawals may be capped. This transaction limit helps keep funds intact for long-term goals, which is especially valuable for building emergency funds or other financial targets.

2. Interest rates: The primary appeal of a savings account is its ability to earn interest. Interest rates on savings accounts vary widely depending on the type of account and institution. Interest is generally compounded daily, monthly, or quarterly, with earnings added to your balance over time. 

3. Safety and accessibility: A major benefit of saving accounts is their safety. In many European countries, savings accounts are covered by deposit guarantee schemes, which protect funds up to a certain limit. This added layer of security makes savings accounts a reliable choice for storing cash, whether for an emergency fund or a significant purchase.

Types of savings accounts

1. Traditional savings accounts

These accounts are easy to open and provide secure storage for funds, though they typically offer lower interest rates on savings accounts. They’re ideal for accessible, low-risk saving.

2. High-yield savings accounts

Offered mainly by online banks, high-yield savings accounts provide higher savings account interest than traditional options. These accounts allow your money to grow faster, making them some of the best savings accounts 2025 for high returns.

3. Certificates of Deposit (CDs)

CDs offer fixed terms and higher interest, ideal for savers who can lock funds for a set period. Although returns are higher, early withdrawals often incur penalties.

4. Specialty savings accounts

These accounts target specific savings goals, like education or health expenses, and may offer unique benefits suited to those needs.

Pros and cons of savings accounts

Here’s a look at the key advantages and potential drawbacks of savings accounts, to help you determine if they’re the right choice for your financial goals.

Features of savings accounts

  • Security: Savings accounts are usually protected by deposit guarantee schemes, making them one of the safest places to store your money. Deposit guarantee scheme provides protection, which is valuable for building an emergency fund or achieving future financial goals.

  • Liquidity: Savings accounts allow quick, penalty-free access to funds, making them ideal for emergencies or short-term needs. This level of accessibility is especially valuable for a savings account for beginners who want to keep their cash flexible.

  • Interest earnings: Although savings account interest rates vary, they enable your balance to grow over time. High-yield savings accounts offer even higher returns, which can help savers reach their financial goals faster.

  • Goal-oriented saving: By opening a savings account, you can set aside money for specific purposes, such as a vacation, home purchase, or emergency fund. Keeping this separate from your checking account can help you avoid overspending and stay on track with your goals.

Drawbacks of savings accounts

  • Lower returns compared to investments: Despite their security, savings accounts generally provide lower returns than investment options. Over time, inflation may reduce the purchasing power of cash held in standard savings accounts with lower interest rates.

  • Transaction limits:Unlike checking accounts, savings accounts generally come with transaction limits, often capping the number of withdrawals you can make each month. These limits are designed to encourage long-term saving and help account holders keep their funds in place for goals like building an emergency fund or planning for future expenses. This limitation is one of the main distinctions in the savings account vs. current account comparison.

  • Fees and minimum balances: Some savings accounts have minimum balance requirements to avoid fees or qualify for interest, which may be challenging for those just beginning to save.

How to use a savings account

Learning how to use a savings account effectively can help you make the most of your money. Here are some tips for getting the best results from a savings account:

1. Build an emergency fund: A savings account is the perfect place to store an emergency fund. Setting aside 3–6 months’ worth of expenses can provide a financial safety net for unexpected events, such as medical bills, car repairs, or temporary income loss. The funds remain accessible, while the account’s interest helps the balance grow.

2. Automate your savings: Automating your savings by setting up regular transfers from your current account can make saving effortless. By scheduling monthly or weekly deposits, you can build your balance over time without having to think about it, ensuring you stay on track with your goals.

3. Link your accounts for easy transfers: Linking your savings account to your current account can make it easier to transfer funds when needed. This setup can be beneficial for overdraft protection or for moving extra funds into savings after regular expenses are covered.

4. Take advantage of compounding interest: Savings accounts allow your deposits to earn interest over time, which can then compound. By consistently adding to your savings, you’ll benefit from this compounding effect, especially with high-yield savings accounts where interest rates are higher.

5. Set goals and track your progress: Many savings accounts come with goal-setting features, which can help you allocate money for specific purposes like vacations, home purchases, or other large expenses. Tracking your progress toward each goal can keep you motivated and organized.

Is a savings account worth it?

A traditional savings account is a worthwhile tool for most people—it provides security, ease of access, and consistent (albeit modest) growth. This makes it a solid choice for those just beginning to save, especially if you’re building an emergency fund or setting aside cash for near-term goals. Deposit guarantee schemes also provide peace of mind, which is a valuable benefit for anyone seeking stability.

Savings accounts are great for safeguarding cash. However, some may be interested in exploring alternative options to grow their funds. For example, Mintos offers Smart Cash, an investment service that allows you to invest in a highly-rated Money Market Fund. 

With liquidity and growth potential, Smart Cash can complement a savings account by providing an accessible and efficient way to invest your money without tying it up in a traditional bank account. For those looking to make the most of their money, using both options can lead to a well-rounded and effective financial strategy.

While not a savings account, Smart Cash offers easy access to money market funds, allowing investors to earn returns by investing in these diversified, short-term financial instruments. Unlike savings accounts, Smart Cash is designed for those interested in potential higher returns from an investment rather than a bank savings product.

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Disclaimer:

This is a marketing communication and in no way should be viewed as investment research, investment advice, or recommendation to invest. The value of your investment can go up as well as down. Past performance of financial instruments does not guarantee future returns. Investing in financial instruments involves risk; before investing, consider your knowledge, experience, financial situation, and investment objectives.

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