What is Traditional Savings Account [Complete Guide 2024]

Did the scoop of thoughts ever come to your mind and say -“I wish I could have saved for this and that instead of spending lavishly on shopping or putting it on credit cards? If you’re nodding to these questions, you’ve headed to the right place, as a traditional savings account is the word for it! 

According to the facts by Bankrate, only 44 percent of Americans can cover up to $1,000 in emergency expenses. Everyone knows how useful cash heaped in a savings account is. From gathering money for emergency funds and covering unexpected bills to buying a new car, doing financial planning for retirement, and dreaming of buying a new house, life is all about setting financial goals.

Not only is it time to develop great saving habits in the form of short-, mid-, and long-term financial goals that may assist you in making your financial dreams come true, but to actively work on them! But how? Let us lend you a hand here!

So, while diving deeper into this guide, you’ll learn what a traditional savings account is, how it can help you achieve your wow fantasies, how it works, what the requirements are to open one, the pros and cons of a traditional savings account, and a lot more.

So, let’s spill the beans!

What is Traditional Savings Account

What comes to your mind when you think of a traditional savings account? Well, according to some, they’re outdated and aren’t of much use, right? But wait, we’ll crash in with some interruption as when you talk of the contrary side; traditional savings methods aren’t always outdated. 

Occasionally, they’re the best, reliable, and tested source of saving money that proves to be lucrative in financial planning for the future.

Now, the question is, how do I start one? We get it! Is money bothering you? No worries—you don’t need to have a lot of money to enjoy the advantages of having a traditional account!

All set to start saving from now onwards? Here’s what you should do before opening a traditional savings account.

Start with acknowledging some of your queries:

How Does a Traditional Savings Account Work?

A traditional savings account is a deposit account served by credit unions and banks that helps grow money safely by allowing customers to deposit their money, earn good interest, and withdraw funds whenever they need to.

Moreover, these banks and credit unions offer traditional savings accounts that are then securely insured by the Federal Deposit Insurance Corporation (FDIC).

These accounts aren’t accessible if you’re looking for frequent withdrawals or transfers. In this manner, a checking account works and its terms and conditions may put restrictions on the number of transactions you make every month or charge transaction costs if it surpasses a monthly allowance/limit.

Traditional savings accounts at credit unions may sometimes be called share accounts. At banks, they are commonly known as passbook accounts, as the record of transactions was made in small notebooks. With time, banks began replacing these passbook accounts with online statements, which you call statement savings accounts.

Note: All these terms are known as the same account type.

The Role of FDIC in Traditional Accounts Functioning

Does the FDIC have to do something when it comes to the functioning of traditional savings accounts? Let’s see!

The FDIC helps protect these traditional savings accounts for up to $250,000 per customer, per bank, per ownership, and similar categories. If your money is with a credit union, the National Credit Union Association (NCUA) will back it up to the same limits. 

Moreover, traditional savings accounts can even earn interest and help your money escalate faster than ever. That said, there are certain requirements and features that you must be aware of to get the best interest rate while searching for a place to stash your cash.

Is a Traditional Savings Account FDIC Insured?

Yes. The FDIC plays an important role in insuring deposits, depending on the ownership category in which your funds are insured and how your accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, and per ownership category.

In addition to this, as mentioned above, FDIC deposit insurance safeguards money you save at an FDIC-insured bank in traditional deposit accounts, such as:

• Checking Accounts
• Savings Accounts
• MMDAs (Money Market Deposit Accounts
• CDs (Certificates of Deposit)

*Important Note: The insurance coverage is automatic when you open any one of these account types at an FDIC-insured bank.

Next, you can have a look at some of the best traditional savings accounts:

Features that Compels You to Choose Traditional Savings Account

There are unique features that make traditional savings accounts stand out, and you can see how!

Best Interest Earnings

Such accounts earn interest on the deposited funds. On the contrary, the interest rates of traditional accounts are usually lower than other savings alternatives.

Immediate Access

Instant access to your funds is the primary feature that attracts customers to open a traditional savings account. Having a savings account in the same place allows you to maintain a checking account that instantly allows you to move funds between accounts via mobile apps or websites. There’s no limit on the number of withdrawals or transfers you make from this account.

Unpredicted Expenses

Traditional accounts are helpful for occasional unlooked-for expenses, especially if you need to access them to cover emergency medical bills, car or appliance repairs, or unplanned overnight accommodations.

Low Minimum Balance

Often, traditional savings accounts have low minimum balance requirements. This feature grabs the eyeballs of a wide range of people.

In all, these features make traditional savings accounts a hit among customers.

Traditional Savings Account Typical Interest Rate

The interest rates on traditional savings accounts may differ based on market volatility and other factors. However, only online banks have an edge by offering more competitive yields.

In general, interest rates on these accounts are on the rise. Contrary to this, traditional savings accounts usually offer lower interest rates compared to MMAs (Money Market Accounts) or CDs (Certificates of Deposit).

Let’s understand with an example- Currently, the national average savings account rate stands at 0.45% APY as of June 2024, according to MarketWatch.

Traditional Savings Account Typical Minimum Balance

A bunch of savings accounts have a minimum balance requirement if you’re looking to open an account. This minimum amount might also be needed to earn the highest interest rate and/or avoid fees. 

Also, a few accounts are layered with higher rates, resulting in higher balances. 

All in all, the minimum balance requirement varies a little between different accounts and banks. Nonetheless, traditional savings accounts have lower or no minimum balance requirements.

Pros and Cons of a Traditional Savings Account

The benefits and drawbacks of a traditional savings account give you a clear vision of how and why you must use a traditional savings account to secure your future.

Pros of Traditional Savings Account

• Accessibility is Top-notch: Traditional savings accounts are easily found at most banks and credit unions, and they’re convenient to open and maintain.
• Liquidity Attracts Customers: Regardless of time and place, you can withdraw or transfer funds. Hence, this feature makes it easy to use your money when you require it.
• Convenience is a Priority: These accounts require minimal maintenance of money. With fewer fee charges, the account has no complex terms and conditions.
• Security is the Key: Money stashed in a traditional savings account at a bank or credit union, insured by the FDIC, is protected up to $250,000. Moreover, in a traditional savings account, you have the advantage of not losing your principal balance, which unfortunately happens in stock market investments.

Cons of Traditional Savings Account

• Low Rate of Interests: Usually, traditional savings accounts offer lower interest rates which implies your money multiplies at a much slower rate compared to other savings options.
• Withdrawal Limits: A few accounts limit the number of withdrawals you make every month. When you exceed this transaction limit it may result in higher transaction costs.
• Higher Inflation Risk: The low interest rates may not go well with inflation. This can result in ruining the frequency of your savings over time.
• Lesser Features: Unlike more complex accounts, traditional savings accounts are likely to be deprived of additional features, benefits, or rewards.

How to Open a Traditional Savings Account 

It’s easy to open a traditional savings account. Whether going for an in-person option or online to open your account, you need to follow a few steps:

Search for Different Account Alternatives

You can start the process by comparing many savings accounts offered by various credit unions or banks to find which one suits you best per your requirements. You can go by comparing features, like:

• Customer service
• Interest rates
• Minimum balance requirements
• Transaction fee 

Do the Documentation Process

To make the process hassle-free, ensure you’ll need to carry some important on-hand documents and details, such as:

• Primary identification, including driver’s license, passport, etc.,
• Social Security Number,
• Tax identification number
• Address proof by submitting utility bills, electricity bills, official mail, lease agreements, etc.

With the help of these documents, you can start the process of opening an account.

Fill out the APPLICATION Form

When you visit the branch, apply online on the official bank website, or download a particular bank app to fill out the account opening form, ensure that all information you provide is accurate, updated, and complete. If you fail to do so, your new account approval may be delayed.

Stash Money in Your Account

Several banks ask for an initial deposit to open your savings account. Usually, you can put cash into the account if you’re visiting the branch, mailing a check, or transferring money from another account.

What are the Requirements for Traditional Savings Account

A traditional savings account is your safe place to store money, and below, you’ll see how it works:

FDIC- or NCUA-Insured Account

You don’t need to do anything special to enroll when your bank is FDIC-insured. Saving your money in a credit union requires a condition that it should be insured by the National Credit Union Administration. 

Since you’ll be stashing all your money into your savings account, it’s known as a deposit account. Thus, you’re eligible for insurance offered by the Federal Deposit Insurance Corporation if your financial institution or bank is FDIC-insured. 

In both cases, your accounts are guaranteed up to $250,000 per bank, which safeguards you if your institution unexpectedly closes.

Requirements of Minimum Balance

Different financial institutions, such as banks, may require a minimum opening deposit when opening an account or a requirement of maintaining a minimum balance as long as the account is active.

Note: If your initial deposit is low enough, you won’t be able to open the account, and you may get charged some penalty fees if you fall under the minimum balance requirement category. 

Fee Structure

You need to make sure that whenever opening a traditional savings account, carefully read out the razor-sharp details if there’s any fee involved with the account. For instance, you can scan out monthly maintenance, withdrawal, or overdraft fees.

Banking Alternatives

What’s more? With the help of mobile banking options, you can access both online and traditional banks. Mobile apps offer easy access that helps you quickly transfer funds without visiting the bank in person.

In this way, traditional deposit accounts help you build up a large amount of money, offering a foolproof strategy against unforeseen circumstances. 

How Much Does a Traditional Savings Account Cost?

The fee in a traditional savings account is usually deducted directly from your account every month. 

The monthly fees vary from bank to bank or from one credit union to another. However, it usually ranges between $5 to $8 and this fee can go as high as $25 per month for high-yield savings accounts.

*Important Note: The fee of monthly maintenance is common among financial institutions, such as banks or credit unions that maintain brick-and-mortar localities.

The Key Takeaway

A traditional savings account is a perfect choice for beginners who want to get their financial world rolling since there isn’t any big requirement of balances, and neither do they charge a bulk of fees. 

A traditional savings account might not always be the idle choice for achieving your financial goals. For example, if you’re crossing your fingers and wish to skyrocket your savings flat out, you may use a high-yield savings account. Or if you have ample savings set aside for your future, depositing the amount in a CD will make sense.

Last but not least, not just traditional savings accounts, but the best account type for your savings depends on your financial needs. This, in turn, will help you decide which savings account type suits you the most.

Ready to open your traditional account? for more updates, follow us on LinkedIn and learn about different savings accounts, and you can choose the type that perfectly fits your needs!

Till then, Happy Savings!