How to open a savings account

How to open a savings account

You've probably heard the advice to “save for a rainy day.” Well, it's raining. But if she hasn't been saving, don't worry. You can get started in minutes with the convenience of online banking and electronic fund transfers. All you need is a savings account.

If you've contemplated the sea of ​​savings account options, you may be in a state of analytical paralysis. If yes, you are in the right place. I'll share the practical aspects of opening a savings account and guide you through the right steps.

Benefits of having a savings account

Having a savings account is a great way to set aside liquid funds for emergencies , plan for large purchases, and put away extra money that you may not have plans for yet. When you have a savings account, you become a lender. Banks borrow your funds and offer an interest rate as a return on your investments.

Consider selecting an FDIC member bank , where your savings account funds are protected up to $250,000 per account holder, per bank. If you choose to open a savings account at a credit union, make sure it is insured by NCUSIF. Like the FDIC, the NCUSIF (National Credit Union Share Insurance Fund) also insures your money up to $250,000. Having a savings account can offer more growth and stability than keeping your money in a locked box under the bed.

Types of savings accounts

You have a lot of options when it comes to opening a savings account. Some types of savings accounts include:

  • Traditional Savings — A simple and straightforward savings account.
  • High Yield Savings — A savings account that offers an annual percentage return above the national average.
  • Rewards Savings — A savings account that offers additional rewards or benefits based on meeting certain conditions.
  • Tiered Savings — A savings account structure that pays different interest rates depending on the amount of funds in the account.

In this article we will focus on traditional, high-yield savings accounts, although there are many other ways to save money with low risk. .

Our top picks for a new savings account

To open an account

Read our direct UFB review

UFB Direct High Yield Savings – Key Features

  • 5.06% APY on all balances
  • There is no minimum deposit to open
  • No monthly maintenance fees
  • FDIC insured

To open an account

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Read our savings generator review

CIT Savings Builder Account – Key Features

  • 1.00% APY (with $100 monthly deposit or $25K balance)
  • No opening or monthly service fees
  • Minimum deposit of $100
  • No online transfer fees (ACH)

High Yield Savings Versus Traditional Savings

Traditional savings accounts are typically offered by brick-and-mortar banks and generally have lower interest rates than high-yield savings accounts , which are primarily offered by online banks. Online banks have fewer overhead costs and can therefore pass on those savings by offering attractive interest rates that can far exceed the national average. The national average interest rates fluctuate. , but online savings accounts often offer rates 15 to 20 times the national average.

The best high-yield savings accounts We offer no fees, online banking and mobile apps for account management, and interest rates well above the national average. Some will come with no minimum balance requirements or initial deposit minimums.

While we're generally fans of online savings accounts, there are certain situations where it can be helpful to have a physical bank to visit. Analyze the results you would like to achieve to choose the right type of savings account for your goals.

How a savings account works

Savings accounts are primarily offered by banks and credit unions, although you can also find them through some credit issuers, such as American Express and investment companies like Improvement . You can deposit money into a savings account and earn money on your balance based on the APY offered by the financial institution. APY will vary, so it's smart to shop around to find the best rate.

A bank may offer one or more of the following:

  • Simple Interest – This is the money earned on the principal balance. The principal balance is what you deposit into your savings account.
  • Compound Interest — Provides a return on the principal, as well as any interest you have earned on the principal.
  • Fixed interest — This is an interest rate that does not change.
  • Variable interest — This is an interest rate that fluctuates.

Each month, you'll be able to see how much interest you've earned on your savings account.

Things to keep in mind

How could saving money ever be bad, right? While saving money is a smart choice, if you don't open the right savings account, you could lose money on fees. When choosing your account, consider the impact of inflation, account fees, and whether the APY is above, below, or above the national average.

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Plus, if you like to move money around frequently, you're only allowed six transactions per month with a savings account. So make sure you open the right type of account for your situation.

Editor's Note : Starting in April 2020, the Federal Reserve removed the requirement that limited savings accounts to six transactions per month. However, some banks and high-yield savings accounts may still have transaction limits. It is important to understand the rules for your specific account to avoid fees and/or penalties imposed by your bank.

How to apply for a savings account

Before opening a savings account, be sure to research what's available and what fits your situation and goals. A good place to start is your current bank. Your bank may offer attractive rates based on your relationship, but it also serves as a starting point for comparisons.

Study the interest rate structure. Know the minimum amount to open an account and have a solid understanding of account balance requirements and fees.

Once you've decided where to open your savings account, here's how to set it up.

Apply

Whether you apply online or in person, you will need to collect your contact and identification information to set up your account. Expect to provide your full name, address, phone number, Social Security number (SSN), and identification such as a driver's license or other state-issued ID.

You can usually complete an online application in 15 minutes or less, although an in-person appointment may take longer. Please be prepared to upload documents if you set up an online account. You can scan the required IDs or take photos with your phone and save them as image files.

Accept

Read and understand the terms and conditions of use of the savings account. This is where you will learn about how the account works , interest rate calculations, fees, and all other pertinent information. Understanding this data is essential to knowing what to expect and how to navigate on your own. If you have questions, ask them before accepting the terms and conditions.

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Background

If there is a minimum amount to fund the account, you can start with that amount as your initial deposit. If you apply online, you can link it to another bank account as a funding source by providing the routing and account number. Some accounts will make a test deposit to verify the funding source and will require you to verify the amount in order to set up the linked account. If you apply in person, you can provide a paper check or cash.

Register

If you want to manage your account online, you will need to make sure you are registered for an online account and the associated banking app. It's also a good idea to sign up for alerts so you can monitor account activity.

Designated

After opening a savings account, you can choose beneficiaries for your account to prevent your funds from being tied up in lengthy probate proceedings. It is also good to communicate this to your beneficiaries. Also address how you want things handled in your estate plan.

Automate

Many accounts will have a feature where you can set up automatic deposits from one or more banks so you can automate your savings. Choose the frequency that best suits your needs, but try to have at least one monthly deposit to help your savings account grow.

Final Thoughts: Open a Savings Account

Opening a savings account with a high interest rate and no fees is a great way to generate money for your future. It is also a good option to save your emergency funds or any other liquid cash not intended for monthly expenses or investments.

Please note that if you have other financial accounts in poor standing, your application to open a savings account may be denied. If that's the case, the best thing you can do is get your personal finances in order. so you can move forward and build a solid financial foundation.

Do you currently have a savings account? If so, how do you use it? Let us know in the comments!

Do you need a savings account?

Find the best high-yield savings account to help you achieve your goals. Compare our top savings account picks here!

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