Can You Lose Money in a Savings Account?

While savings accounts are designed for security and stability, the idea that money cannot be lost in them is nuanced. Various factors can affect the real value or even the nominal balance of funds held in such accounts.

Understanding Inflation’s Impact

Inflation represents a general increase in prices for goods and services over time, which reduces the purchasing power of money. While the numerical amount in a savings account remains the same, its real value, or what it can buy, diminishes. For example, if a savings account earns 1% interest but inflation is at 3%, the money effectively loses 2% of its purchasing power annually.

This erosion of value means that even if the dollar amount in an account grows due to interest, the money may buy less in the future than it does today. High-yield savings accounts can offer higher interest rates, which might help offset some of these inflationary effects, but they do not always keep pace.

Account Fees and Their Effect

Savings accounts can incur various fees that directly reduce the account balance. A common charge is a monthly maintenance fee, which can range from approximately $5 to $25. These fees are often waived if certain conditions are met, such as maintaining a minimum balance or linking other accounts.

Other potential deductions include excessive withdrawal fees, which occur if a depositor exceeds a set number of transactions. Inactivity fees may also apply if an account remains unused for an extended period. Additional charges like stop payment fees or wire transfer fees can also decrease funds.

Deposit Insurance Protections

Federal deposit insurance provides a safeguard for money held in banks and credit unions. The Federal Deposit Insurance Corporation (FDIC) insures deposits at banks, while the National Credit Union Administration (NCUA) provides similar protection for credit unions. Both agencies insure funds up to $250,000 per depositor, per institution, for each ownership category.

This coverage applies to common deposit products like checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs). In the event of a bank or credit union failure, the FDIC or NCUA will either transfer insured deposits to another institution or issue a check to the depositor for the insured amount.

Funds held in different ownership categories, such as individual accounts versus joint accounts, are insured separately. However, investments like stocks, bonds, mutual funds, and cryptocurrencies are not covered by this insurance, even if purchased through an insured financial institution.

Protecting Your Account from Unauthorized Access

The risk of losing money due to fraud or unauthorized transactions is a concern for account holders. Criminals employ various tactics, including phishing (impersonating entities to trick individuals into revealing sensitive information), identity theft (stealing personal details to gain account access), and malware (compromising computer systems).

To protect savings, use strong, unique passwords for online accounts and avoid using personal information. Enabling two-factor authentication (2FA) adds an extra layer of security. Regularly monitor account statements for unusual activity and promptly report any suspicious transactions to the financial institution. Exercise caution when using public Wi-Fi for banking and be skeptical of unsolicited communications.