A savings account is about as basic as bank accounts come. You add money to it, and you'll earn interest on your savings. You'll likely be limited in how often you can withdraw money, since some banks still adhere to withdrawal and transfer limits related to Regulation D. You may also be limited in how you withdraw your cash -- savings accounts don't often come with an ATM or debit card.
Savings accounts are a great place to keep your emergency fund, as well as money you're putting aside for a near-term financial goal, like buying a home or funding a big vacation. With such a simple product, you likely assume there's no way to lose money in your savings account. You'd be wrong, though. Let's take a look at a few ways your savings account can cost you.
1. Bank fees
You might be charged different bank fees, which will cost you money in a very concrete way. For a savings account, you should watch out for account maintenance fees in particular, which are charged monthly. There are ways to avoid them, however, such as by keeping a certain amount of money in the account or by opting to have money transferred automatically from your checking to savings every month.
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Pay attention to your account's requirements to see what you need to do. I'm still kicking myself for losing $50 to maintenance fees on one of my savings accounts last year, because as it turned out, I only needed to keep $300 in the account to avoid being charged. Thankfully, banking fees are going the way of the dodo, especially if you choose an online-only bank.
2. Inflation
Inflation is finally easing; per the last Consumer Price Index report, it stood at 3% in June 2023. If you've got your money in a high-yield savings account, you could well be earning a higher APY than this, and getting to preserve the value of your savings in the face of inflation. For example, the account I have with an online-only bank is currently earning an APY of 4%. Savings account rates are variable, though -- it's likely that my bank will lower the APY on my account eventually.
But if your savings is languishing in an account with a traditional bank, you're likely only earning a fraction of this. The savings account I have at a big national bank (the one that charged me $50 worth of fees last year) is currently earning an APY of 0.01%. There's clearly a big difference there, and it's for this reason that the bulk of my savings is in the online bank and I only keep the other savings account for overdraft protection on my main checking account.
During the higher inflation we suffered through last year and earlier this year, no savings account would have beaten it, but at least a high-yield account could somewhat mitigate your money's value loss. It's important to not keep too much money in your savings, and consider investing money over what you need for an emergency fund or that big near-term financial goal you're working toward. Money kept in a savings account for many years will definitely lose value to inflation.
3. Bank failure -- if your bank isn't FDIC insured
This last way to lose money in a savings account is definitely an extreme situation. If you have money in a bank that isn't FDIC insured, and that bank fails, you're likely to lose your savings. Thankfully, most of the bigger names in the banking world are covered by FDIC insurance. This means that in the event of a bank failure, up to $250,000 of your money in a savings account will be returned to you (this amount is per depositor, per bank, so if it's a joint account, up to $500,000 is protected). To check whether your bank is covered, you can look it up using the FDIC's BankFind Suite tool.
Savings accounts are a safe place to keep your money. But watch out for fees, inflation rates, and a lack of FDIC insurance to ensure you don't lose any of your hard-earned cash.
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