Any responsible person needs to have both, a checking account and a savings account in order to be financially efficient with their budgets. Savings accounts are a safe way for consumer to build their wealth because not only does it provide a guaranteed rate of return on the amount put into it but the principal is insured against any losses by the FDIC up to $250,000 per depositor, per insured bank.
You can opt to open a savings account either online or face-to-face with your local branch. Typically there is a minimum amount needed for opening an account. In terms of penalties, there are probably a number of transactions (such as withdrawals) a bank account holder can make before the bank may levy a fee, or additional charge. Terms and agreements varies from bank to bank so be sure to do some research first if you sign up for a savings account.
A savings account works for two reasons. The first, is by encouraging people to save by stashing money away where it is less easily accessible. Secondly, savings accounts allow the principal to grow because the money stashed away can earn interest.
Interest is the amount of money your bank pays you to have a savings account with them. The interest rates earned on savings accounts are low compared to investment accounts (i.e. bonds, CDs, etc.). However, the risk of losing your money when stored in a savings account is minimal. There are exchanges for everything and low interest rates are the exchange for minimizing your principals’ risk, and that is another key element to how a savings account works.
In general savings accounts are one of the first steps needed for individuals to build a financial history and eventually some type of savings. Savings accounts are most efficient when the bank holder is committed to saving and taking advantage of all programs offered by banks – such as, direct deposit, automated scheduled transfers, etc.