What is a key characteristic of a savings account?

A savings account is primarily characterized by its ability to earn interest on the deposited funds. This interest is calculated based on the balance in the account, allowing the account holder to accumulate wealth over time simply by maintaining their savings. This feature distinguishes savings accounts from many other types of accounts that do not provide interest income.

While some savings accounts may come with fees, such as ATM fees or monthly maintenance fees, these are not universal characteristics. Similarly, savings accounts are not specifically classified as investment accounts. Instead, they are designed for short-term savings and liquidity rather than for long-term investment growth. Additionally, the notion that a savings account reduces the principal amount over time is not accurate; in fact, a savings account is intended to preserve the principal amount while potentially increasing it through earned interest.