Should I open a savings account? Why now is a good time.

A savings account is a simple tool that anyone can use to improve their finances. If you’re looking for an easy way to earn interest on your money, or you just want to make sure your cash is safe, a savings account is a great way to go.

Plus, right now there are more reasons than usual to consider opening a savings account.

Between the high cost of gas, increases in healthcare premiums, and changes to federal student loan payment programs, many Americans are struggling to keep up with their expenses. So a financial tool that can incentivize you to set aside money for crucial expenses is more timely than ever.

Should I open a savings account right now?

If you don’t have a savings account, there’s no time like the present to open one. A savings account is a key financial tool that can help you weather financial difficulties and feel more secure overall.

Even if times are tough and you can only save a few dollars here and there, you can still experience major financial (and mental) benefits from having a savings account. Here are some of the great reasons to open an account:

Safety: When your money’s stashed around the house, it can get damaged, stolen, or lost. But that can’t happen to money that’s in the bank.
Insurance: Most banks and credit unions insure your money up to $250,000, so you won’t lose your deposits if your bank fails.
Earn interest: If you shop around, you can currently find savings accounts with rates as high as 4% APY. At that rate, a deposit of $5,000 can earn an extra $204 in one year.
Spend less: When you deposit money directly into savings from your paycheck, you’re less likely to spend every dollar you earn.
Easy access: Most banks give you multiple easy ways to move money to and from your savings account when you need to, including direct deposit, instant transfers between accounts, and Zelle.
Incentivize saving: You’re more likely to save money when you have a bank account set up specifically for that purpose. Plus, savings accounts make it easier to track your savings and see how much progress you’re making.
Prepare for emergencies: A small expense like a minor car repair can become an emergency if you don’t have any money saved. But if you have savings, you’re less likely to turn to costly solutions such as payday loans, credit cards, or overdrafting your checking account.

Types of savings accounts

When you’re shopping around for a savings account, you may notice there are a few different account types to choose from. Any of the following types of savings accounts can be good options depending on the features you’re looking for:

Traditional savings account

Available through most banks and credit unions, traditional savings accounts let you quickly withdraw, deposit and transfer money, and they usually have slightly higher interest rates than checking accounts (0.39% versus 0.07% on average, respectively).

Money market account (MMA)

Money market accounts typically blend the features of checking and savings accounts. For example, an MMA might come with both debit cards and checks. Some MMAs require higher minimum balances, but they pay competitive rates (as high as 4% APY currently).

High-yield savings account (HYSA)

High-yield savings accounts are primarily offered by online banks. The rates on HYSAs are generally much higher than other savings accounts and many HYSAs have no fees, but they don’t typically come with ATM cards.

Read more: How to open a high-yield savings account: Step-by-step instructions

How to choose the right savings account

There are thousands of savings accounts to choose from, so it’s easy to get overwhelmed by the options. Some people just go with the bank where they already have a checking account. But it pays to shop around and compare accounts — allowing you to identify the options that fit your needs best.

Here are a few factors you’ll want to evaluate when you’re choosing the best savings account for you:

Annual percentage yield (APY): The account’s APY shows you how much interest you’ll earn on your money over the course of one year, based on how often interest compounds. The higher the APY, the more you’ll earn. However, you should check to see if there are any special conditions to earn interest, such as a minimum account balance.
Fees: Read the fine print, including the account terms and conditions, to see the list of fees. The main fees to look out for are monthly maintenance fees and fees for dropping below a minimum balance.
Account access: Make sure you can easily access the account in a way that works for you. Depending on your preferences, this might include features like physical bank branches in your area, fee-free ATMs or a debit card.

Read more: How to choose a savings account: 6 key features to consider

Potential downsides of a savings account

Savings accounts are very low-risk, so there aren’t many downsides to opening an account. That said, you can run into issues if you use your savings account the wrong way, or you fail to read the fine print. Here are some issues you can encounter with a savings account:

Limited withdrawals: Some banks limit you to six savings withdrawals per month. If you make more than that, you might be better off moving some of your money to a checking account.
Variable rates: Interest rates on savings accounts are variable, meaning they can change at any time. If your rate drops and you don’t move your money, you could miss out on the opportunity to earn more.
Limited interest: Interest rates on savings accounts are usually lower than what you can earn through investing. So for money you don’t need in the next several years, you may want to invest in stocks, mutual funds, bonds, or other market investments to earn more.
Account fees: If your savings account has monthly maintenance fees or other fees you regularly incur, you could end up losing money on the account.
Taxable interest: The interest you earn on your savings accounts is taxable as income.