Savings Accounts Key Terms

Learn about different types of savings accounts and earnings

By Terri Deno

Savings accounts are the safest way to earn money, but they are also the slowest way. Savings accounts provide a specific interest rate for consumers that is compounded daily. The amount of interest earned on the account is determined by the average balance of the account. All savings accounts are insured by the FDIC for up to $250,000 until 2010, when the rate will be reduced to $100,000. Savings accounts also provide a way for quicker access to finances than other financial products such as CDs, stocks or mutual funds.

Annual percentage yield

The annual percentage yield is the rate calculated for savings accounts during one year, taking into account any compounded interest.
Try: Bank Rate provides information on how to choose a high-yield savings account and the benefits of these accounts.

Average daily balance, average balance

The average balance of a savings account is calculated by adding the full principal of the account each day, then dividing it by the number of days in a statement period to determine interest earned.
Try: Street Authority provides a detailed explanation on how to calculate the average daily balance of a savings account.

Balance

The balance of a savings account is the amount of money in the account at any given time. Some savings accounts may require that a minimum balance be kept to avoid being charged fees.
Try: Farmers State Bank provides information on the types of savings accounts the bank offers, including those that don't require a minimum deposit.

Custodial account

A custodial account is a savings account for a child. It remains in the child's name, but is controlled by a parent or guardian until the child is of legal age. Custodial accounts can be known as UGMA (uniform gift to minors) or UTMA (uniform transfer to minors).
Try: Fairmark provides the basics on how custodial accounts work, the transfer process and what state regulations apply to these accounts.

Federal Deposit Insurance Corporation (FDIC)

The Federal Deposit Insurance Corporation is a federal agency that serves to protect depositors in the event that a bank fails. Savings accounts are protected up to $250,000.
Try: The Federal Deposit Insurance Corporation provides information on insured deposits for consumers and the rules that apply to individual and joint accounts.

Interest rate

The interest rate on a savings account is the rate in which an account earns money. This number is expressed as a percentage and does not reflect compounding.
Try: Money Rates provides updated information on the top 200 banks that offer the best interest rate for savings accounts.