Savings Accounts

What is a savings account? A savings account is a bank account that pays interest on the money that is deposited (also known as the principal). With a savings account, you can withdraw (take out) and deposit (put in) money, but you cannot write checks. Savings accounts are a great way to earn money just based on interest.

Remember how simple interest works: If you deposit $100 into a savings account that offers 10% annual (yearly) interest, then you will have $110 in your account at the end of the first year (the original $100 plus $10 in interest). The $10 in interest is calculated by multiplying the deposit by the interest rate (expressed as a decimal). Since interest is calculated as a percentage of your balance, the more money that you deposit, the more interest you will earn. Using the previous 10% annual interest example, if you had originally deposited $200, then you would have earned $20 in interest in a year ($200 X 10%) - which is twice as much interest earned than the $100-deposit example. This example assumes that you did not make any withdrawals or deposits during the year.

If you are not planning to use the money anytime soon, then a savings account might be the way to go, because your money can grow with interest. Savings accounts are compound interest earning accounts; this means that they earn interest on both the money that you deposit and the interest the account has already earned. Compound interest makes your money grow even faster.