As of May 2009, most savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per account. Unless extended, this insurance drops to $100,000 on January 1, 2014. To take advantage of this protection, verify that your savings account has FDIC protection. You can also open multiple savings accounts if your funds exceed the guarantee. Because of this protection, savings accounts have a high level of safety as an investment method.
Commercial and mutual savings banks, credit unions and savings and loan institutions usually offer savings accounts. Each type of institution has different restrictions on your ability to open an account and the interest rate offered. Mutual savings banks and credit unions may have restrictions on membership based on your group or location affiliation. These two types of savings institutions are owned by their members and typically offer higher interest rates on savings accounts.
Many savings accounts are offered online from banks with no or limited physical presence. The premise behind these accounts is that in exchange for not having a physical bank, the overhead is lower and they can offer a higher rate of return. These accounts can be managed through a link to your existing checking account or by mail. Customer service is conducted by phone, email or by online forms. Some examples of online savings accounts are ING Direct, Emigrant Direct and E-Loan.
Banks are required by the Federal Reserve to maintain a percentage of their total funds for immediate access by customers. To help maintain this reserve, there is a limit of six monthly withdrawals on a savings account based on the Federal Reserve Regulation D. Some banks will not allow more than six transactions, while some may let it occur once or twice before providing a waning that the account will be closed if the excess withdrawals occur again. If the excess withdrawals occur more than three times in a 12-month period, the bank is required to close the account.
A savings account with a good interest rate is considered a key component of a balanced portfolio. A balanced portfolio typically includes investment vehicles with different rates of return, different levels of risk and different levels of liquidity. Funds in a savings account help balance funds in riskier investments like stocks and provide a high liquidity option when you need quick access to funds.