The aim of this paper is to analyze the major factors that affect households saving behavior and their tradition of adopting formal financial institutions in the case of Gondar city. To do so, crosssectional survey primary data was collected using self-administered questionnaires from 321 households from six sub-cities of Gondar city. Multistage stage sampling techniques was used to contact with the study units (households). Both descriptive and econometrics approach of data analysis have been undertaken. From the econometrics aspect, two sets of models (the method of Principal Component Analysis and logistic regression) were employed as a tool of analysis. the descriptive result of the study revealed that out of 321 sample respondents, about 73.83% use formal financial institutions, but, only 55% of them have saving practices, whereas the remaining 45% were not in a position to save from their monthly income, as a result, the level of saving rate was found to be low. The study found that the extent of saving by banked households is more than that of unbanked counterparts. The governing saving motive found in this study was saving for the purchase of durable asset(s). The result of logit model provided empirical evidence on a positive significant effect of monthly income, age, households bank account holding experience, educational level of being college diploma and above, aces to credit by the household and households occupation of being government employee, on the saving capacity of households; whereas sex, family size, monthly expenditure, distance from households house to financial institutions, income square, age square, house owner ship, marital status of being single and divorced and weak institutional setup have a negative influence on households saving capacity. The study recommended that government in collaboration with financial institutions should focus on awareness creation and financial literacy on the importance saving and saving modalities, planning and expenditure controlling habit, increasing the availability and accessibility of financial institutions and implement door-to-door service provision in order to promote household saving. This study analyzes household saving behavior with cross sectional data using only financial saving by employing smaller sample and binary logit regression model. Thus, further research may be undertaken to incorporate larger samples by employing other econometric models such as Heckman sample selection model and Tobit models and by utilizing panel data with interviews and focus group discussions.