Unraveling the Truth: Which of the Following Statements About Savings Accounts is False?

Savings accounts are one of the simplest financial tools, but quiz questions about them can be tricky. Here's the question:

"Which of the following statements about savings accounts is FALSE?"

1. Savings accounts don't usually pay interest on the money you deposit.
2. Savings accounts limit the number of withdrawals that can be made each month.
3. Savings accounts may require you to maintain a minimum balance to avoid paying a fee.
4. Savings accounts are best used to store money for longer-term goals.

Let's look at each statement:

1. Savings accounts don't usually pay interest on the money you deposit.
   • False. Paying interest is a defining feature of a savings account. Rates vary widely by bank and account, but savings accounts generally earn interest on your balance.
2. Savings accounts limit the number of withdrawals that can be made each month.
   • True for many accounts. Federal rules used to cap certain savings withdrawals and transfers at six per month. The Federal Reserve deleted that six-per-month limit from Regulation D in April 2020, but many banks still set their own limits or charge fees for excess withdrawals. Check your account terms.
3. Savings accounts may require you to maintain a minimum balance to avoid paying a fee.
   • True. Some savings accounts charge a monthly fee if your balance falls below a set minimum. Many online accounts have no minimum, so compare fees before you open one.
4. Savings accounts are best used to store money for longer-term goals.
   • Mostly true, depending on the timeline. Savings accounts are well suited to emergency funds and goals a few months or years away, such as a car or a down payment. For goals decades away, like retirement, investments have historically offered higher returns, along with more risk. Savings accounts at FDIC-insured banks are covered by deposit insurance up to $250,000 per depositor, per bank, per ownership category.

The false statement is: "Savings accounts don't usually pay interest on the money you deposit." Earning interest on deposits is one of the main reasons to keep money in a savings account.

Knowing how your account works, including its rate, fees and withdrawal rules, helps you pick the right one for your goals.

Sources

• Federal Reserve Board announces interim final rule to delete the six-per-month limit on convenient transfers from the "savings deposit" definition in Regulation D, Federal Reserve Board
• Are My Deposit Accounts Insured by the FDIC?, FDIC