A man with his daughter sitting on his lap at the kitchen table working on his laptop exploring different kinds of savings accounts.

Four kinds of savings and other important savings account information

Learn more about savings accounts and how they work. We share four different kinds of savings to help you decide which one may help with your financial goals.

Important savings account information

What is a savings account?

A savings account is a simple way to save money. Savings accounts are liquid, which means that the money is available for quick withdraw. This makes them ideal for financial needs such as: holiday spending, major purchases, vacations, weddings and emergency funds.

How does a savings account work?

You typically open a savings account at a bank or a credit union, and deposit money in it. Your account will then produce interest on your balance. Keep in mind that while you'll earn interest on the money in your savings account, it won't be as substantial as with other investment options.

You can access your money in this account with an ATM card, by making withdrawals at a bank branch or by transferring money from your savings account to a checking account. Savings accounts typically do not offer debit cards or checks. Your bank or credit union can confirm if there are restrictions on number of withdrawals, minimum balances and interest rates offered.

Are savings accounts insured?

Accounts are insured up to $250,000 per ownership category per bank (not per savings account opened). The Federal Deposit Insurance Corporation (FDIC) offers insurance in many different account type/ownership categories. Based on the structure, you may be able to receive more than $250,000 i.e., adding beneficiaries.

Types of savings

Emergency fund or “I can’t touch fund”

Emergency funds are important because they can help you address unexpected things that might cost you money. Examples include a job loss, medical emergencies and home or car repairs. If you don’t have an emergency fund, you may choose to incur credit card debt to address these challenges. An emergency fund is designed to help avoid using credit when these emergencies occur.

A high-yield savings account could be used for an emergency fund. It offers an increased interest rate, but often has higher minimum balances and may charge fees, too.

Another savings account to consider for an emergency fund is a money market savings account. This account type may offer higher rates — even promotional introductory rates. Some have minimum balances, like $500 or $1,000, that the saver must maintain to avoid fees, compared to lower or no minimum balance requirements with traditional savings accounts.

Theoretically, emergency funds are used infrequently, so the trade-offs might be worth it if you decide to use one of the higher interest accounts.

The "I can touch" fund

This is for things you know are going to happen, but just not every month. Gifts, travel, real estate taxes, homeowners insurance premiums or hair appointments, for example. Figure out what's coming up and put some money away to pay for these expenses. Then when they do come up, you don't have to bust your monthly budget to pay for them — the money is already there, waiting.

A traditional savings account can be good for this type of savings. Most savings accounts offer online access, making it easier to transfer money and check your balance. In addition, some may not require a minimum opening deposit and will let you make direct deposits, which can help if you want to set up an auto-transfer option. Finally, while the interest rate may be lower than other savings account types, you may have quicker or easier access to funds.

"I know what I want, I just need to pay for it" fund

This kind of savings is for a specific goal or purchase that may happen in a few years. Some examples may be a dream car, a once in a lifetime travel destination or a wedding. These are not really part of your living expenses. They are something you would like to have. So, this savings is designed to help you get them.

A certificate of deposit (CD) may be a good way to save money for this type of goal. Minimum balances vary, and renewal options let you put your money in a CD and forget it; you can't access the funds without penalty until the term is over. CD terms generally range from about six months to five years; typically, the longer the term, the better the interest rate. One thing to note: When mature, CDs automatically renew unless you direct the bank otherwise.

Long-term savings

When you're saving for things like a down payment or retirement, you'll want to think about saving in a different way. For longer time frames, you might consider investing your money rather than putting it in a traditional savings account.

Now that you have read about saving accounts and saving types, you may be interested in learning more about other financial topics like basics of investing, mutual funds or different retirement accounts.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

Start a quote

Select a product to start a quote.

Find agents near
you or contact us

There’s one ready to offer personalized service to fit your specific needs.

Related articles

Tips to plan for an affordable vacation

Whether you're keeping a detailed budget or just estimating, the major expenses to consider for most vacations are listed here along with tips to save money on these choices.

Financial wellness tips to help improve your financial future

Get ahead and learn how to improve financial wellness through simple spending, saving and budgeting tips.

Holiday savings tips

With a little extra planning and online research, you can stretch your gift-giving budget this holiday season.

Budget breakdown

You can have a budget — and still live the life you want to live. Budgeting is a simple and reliable resource for shedding unwanted debt, reaching financial goals, living a healthier financial lifestyle and maintaining true financial wellness.