What is a savings account?
A savings account is an account where you deposit money with a bank or other financial institution that pays you a small amount of interest while you leave the money with them.
Where have you heard about a savings account?
If you walk into your local bank branch or log in to your online bank account your bank may try to encourage you to register for a savings account too. Savings accounts are often in the news when interest rates rise or fall.
What you need to know about a savings account.
There are a variety of savings accounts that operate in slightly different ways. Some instant access accounts will let you put in money and take it out when you want to. Because of these freedoms they usually pay the lowest rates of interest. The interest rate will be variable and is likely to go up or down as base rate changes.
Other kinds of savings accounts are known as term accounts where you promise you will leave your money in for a set amount of time. The interest is likely to be fixed for the whole length of the term. The longer you leave your money in the higher the interest rate is likely to be. Some banks will also offer incentives to register for a savings account giving a higher rate of interest in the first year, for example.
Some governments also offer incentives to encourage people to save for example, allowing savers to earn interest without having to pay tax on the interest.
You can't generally use your savings account to pay bills - you need a current or checking account to do this.
Over time, inflation can devalue the worth of savings but if you leave your interest in your account you'll end up earning interest on your capital plus the interest already earned - compound interest.