Historically, the interest that banks could pay on accounts was limited by the federal government. In the 1970s however, that mechanism was proven insufficient when inflation and interest rates rendered fixed rates obsolete. This led to the era of deregulation in the early 1980s. Since then, banks have been free to pay whatever they choose on their accounts.

Today, savings accounts, despite being very popular, generally give the lowest yield of most cash based investment options. While they're more easily accessible than a certificate of deposit, they generally yield very little interest. These accounts are FDIC insured, so they are very safe, but so are several other options that yield considerably better interest.

The primary advantage of a savings account is easy access to your money. While many have minimum balances and some have withdrawal penalties, your money is generally easily accessible.

When Would You Use a Savings Account?

Generally savings accounts are appealing to those who do not have considerable savings available and may need it at any time. You can generally find savings accounts with small or no minimum balances and no fees. In fact you should not bother with any savings account that has any kind of fees, as it will eat up your interest very quickly. The only typical advantage of a savings account is less stringent rules than a money market account, and even that is not a guarantee.

As a general rule, if you have considerable cash available for investment, other vehicles, which are equally as safe, can yield much higher returns. In particular:

• Money Market Accounts
• Certificates of Deposit

Tend to yield more and be just as safe.

High Interest Savings Accounts

Many institutions will advertise their “high interest savings accounts.” Fundamentally this claim doesn’t necessarily mean anything. There is no qualification that a savings account must meet to be deemed “high interest,” however generally this terminology is used by banks who wish to indicate that they believe their rates are particularly competitive. Like all other accounts be sure to understand the details of the account including fees, minimum balances and potential yield adjustments before committing to such an account.