What is a savings account?

A savings account is specifically designed as a deposit account held at a financial institution, such as a bank or credit union. It allows individuals to deposit their money and withdraw funds as needed, while also earning interest on the balance maintained in the account. This interest provides a small return on savings, encouraging individuals to save for future needs or emergencies.

Unlike investment accounts that focus on buying stocks or other securities, savings accounts are not meant for aggressive investing but rather for safe, short-term storage of funds. Additionally, a savings account is not exclusively used for retirement, as there are specialized accounts for that purpose (like IRAs). Moreover, it is distinct from credit accounts, which involve borrowing money and have fixed interest rates that require repayments. Overall, a savings account plays a fundamental role in personal finance by helping individuals manage their cash flow and build savings over time.