What is a savings account, and why do you need one?

A savings account holds money not being spent immediately, and it typically earns interest. Here’s how it works and what to consider for anyone new to the banking system who’s also managing a regular transfer schedule.

What is a savings account?

A savings account is a type of bank account⁠(opens in new window) designed to hold money being set aside rather than spent right away. It typically earns interest on the balance, though usually at a modest rate, and often limits the number of withdrawals allowed each month compared with a checking account.

Why a savings account matters for your financial goals

For someone building financial stability in a new country, this kind of account plays a specific role: it’s a place to set aside money for goals and emergencies, separate from the account used for everyday spending. This separation matters because it’s easy for a savings goal to quietly disappear into day-to-day expenses if both are mixed into a single account.

A few things worth knowing when opening or using one:

• Interest rates vary meaningfully between banks, so it’s worth comparing a few options rather than automatically defaulting to whichever bank already holds a checking account⁠(opens in new window).

• Some accounts limit withdrawals to a certain number per month before charging a fee or converting the account type.

• Minimum balance requirements sometimes apply to avoid a monthly maintenance fee, so it’s worth checking before committing to a specific bank.

• Federal deposit insurance typically covers this kind of account up to applicable limits at an insured bank or credit union, the same protection the FDIC describes for deposit accounts generally⁠(opens in new window).

Common mistakes with savings accounts

• Keeping everyday spending money in the same account as savings. Mixing the two makes it easy for a savings goal to erode without noticing, since there’s no visual or structural separation from regular expenses.

• Not checking the monthly withdrawal limit before relying on the account for frequent transfers. Some banks charge a fee or restrict the account once a certain number of withdrawals is exceeded in a given month.

• Assuming the advertised rate applies to the entire balance. Some accounts use a tiered structure where only a portion above a certain threshold earns the higher rate.

Savings accounts and international money transfers

For immigrants supporting family abroad, this kind of account can help create a buffer that keeps a regular remittance schedule steady, even when an unexpected expense comes up in a personal budget. Rather than treating a transfer as the only financial priority each month, setting aside even a small amount can reduce the pressure to skip or delay one when money is tight.

It can also be useful for building toward a specific goal connected to sending money home, such as covering a larger, one-time transfer for a family event, a medical expense, or a planned visit. Keeping that money separate from a regular checking account makes it easier to track progress toward the goal without accidentally spending it on something else.

For anyone helping a family member abroad open their first account of this kind, it’s worth noting that features, interest rates, and access to online banking vary significantly by country, so what’s typical in the United States may look quite different elsewhere.

How compound interest affects your balance over time

Most accounts of this type pay compound interest, meaning interest is earned not just on the original deposit but eventually on the interest itself as it accumulates. While a modest rate won’t grow a balance dramatically overnight, understanding that even small, regular deposits compound over months and years can make the habit of consistent saving feel more worthwhile than looking only at a single month’s interest payment.

Online-only options worth considering

Beyond traditional brick-and-mortar banks, a number of online-only banks offer notably higher interest rates on this type of account, since they avoid the overhead costs of physical branches. These are typically still FDIC-insured, making them worth comparing alongside a primary bank’s option if a higher rate matters more than in-person branch access.

Why automating deposits makes saving more consistent

Setting up an automatic transfer from checking on payday, even a modest amount, tends to build a habit more reliably than deciding manually each month whether to move money over. This “pay yourself first” approach means a savings goal is funded before everyday spending has a chance to absorb the money.

Separating goals into more than one account

Some savers open more than one account of this type, one for an emergency fund and another for a specific goal like a family visit abroad, since keeping goals visually and financially separate makes it easier to track progress toward each individually rather than watching one combined balance.

Youth and student options sometimes waive standard fees

For a younger family member or a student opening their first account, asking specifically about a youth or student version is worth doing, since these often waive minimum balance requirements and monthly fees that would otherwise apply to a standard adult account.

In Summary

A savings account gives a dedicated place to build a financial cushion, separate from everyday spending, which can make a real difference for anyone also managing regular transfers to family abroad. Comparing a few banks’ rates and requirements before opening one helps ensure the balance actually grows rather than quietly sitting at a low rate.

This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.