A savings account not only offers a secure place to stash your cash but also helps your money grow through interest. Whether you’re saving for a rainy day, a holiday or a home, a savings account is a must-have for your personal finances.
Choosing the best savings account for your financial goals
When you’re considering what type of savings account to open, you’ll need to weigh out the benefits and potential drawbacks of each account and bank that you’re considering.
Think about the following when choosing a savings account:
- Does this savings account have a competitive annual percentage yield (APY)?
- Do you prefer to bank online or in person?
- Is there a required minimum balance for your savings account?
- What fees are associated with the account? Or, is it a no-fee savings account?
Opt for the savings account that marries the highest yields with the lowest fees. After all, you don’t need your savings account to do much; it’s mostly a depot for cash that you’re holding in case of emergency or for a future big purchase. You won’t, or shouldn’t, be moving money out of the account too frequently.
If you’re not confident that you’ll be able to leave your savings account alone, either because you’re having trouble making ends meet or your personal finances involve large transactions, consider a money market account (MMA).
A money market account marries the check-writing capabilities of a standard checking account with the higher yields of a savings account.
How to open a savings account: Step-by-step
Opening a savings account can be a straightforward process if you know what you’re looking for. Follow these steps to start your saving journey.
1. Research banks and credit unions
Start by figuring out what you’re looking for in a savings account. This will help you figure out what type of bank or credit union you should search for.
Different banks offer different features — some might have higher interest rates or ATM cards, while others might support causes you care about, such as climate action or minority-owned businesses. Decide what’s important to you to find the best fit.
“Many individuals opt for their existing bank due to convenience without thoroughly exploring other options,” says Amy Colton, a wealth advisor at Forefront Wealth Partners. “While there’s merit in loyalty, choose a financial institution that provides a competitive interest rate and doesn’t have hidden fees that can diminish your savings.”
2. Gather documents
After picking your bank, you’ll need a few essential documents:
- Identification, like a driver’s license, passport, state ID card or military ID card.
- Residential address.
- Social Security number or Individual Taxpayer Identification Number (ITIN).
- An opening deposit, if required.
This process shouldn’t be too much of a surprise given that 98% of American households are helmed by someone who owns one type of bank account, per the Federal Reserve.
3. Apply for your savings account
“Opening a savings account is easier than ever,” says Adam Moelis, the co-founder of Yotta, an online banking platform. You can do it online or in person, depending on the bank. The whole process takes less than 30 minutes.
If you’re choosing a high-yield savings account, you’ll likely need to apply online, as many banks offering these accounts are online only.
4. Make an opening deposit
Each bank has a different minimum for the initial deposit, but most are between $25 and $100. If you’re opening up an account in person, you can use cash or a check to do this. If you have a checking account, you can use the routing number and account number to transfer money to your new account.
Where can you open a savings account?
You can open a savings account at most banks or credit unions. You’ll want to be sure that the institution is reputable and FDIC-insured. If you already have a bank account, you can look into opening a savings account at the same institution, or, you can find a new bank for your account.
Thanks to the advance of digital banking, many savings accounts are now opened online. Although each bank has a specific application process, most allow you to open an account online. This is often the most convenient option. If you’d prefer to go in person, you can also apply at a physical branch, if your chosen bank has one.
Tips for managing your savings account
Picking the best savings account for you is one thing, actually building up enough cash to weather a financial storm is another. After all, only 54% of American households have three months’ worth of emergency savings, per the Fed.
With a few subtle moves, however, you can improve your outlook.
Automatic transfers. Setting up automatic transfers to your savings account is a great way to slowly build towards your savings goals. You can use a savings calculator to help determine how much money you should be saving in order to hit your goals. If you’re still at a loss, start by saving just 1% of your pay into a savings account. Once you’ve gotten used to that, inch up to 2%, and so on.
Consider opening multiple accounts. For some people, it can be helpful to open up multiple savings accounts. This will keep your money separated based on the goals that you have. For example, some people have one account for a house down payment and another account for car-related expenses. By successfully saving for a specific goal, you give yourself the confidence that you can meet your financial needs.
Check your balance. It’s easy to forget to check your savings account balance, however, it’s important to log into your account regularly to ensure that everything looks correct. Check that your transfers are going through and that you haven’t dropped below the minimum balance. To get over the mental hurdle, make it the second thing you do each day (after that morning cup of coffee.)
Eliminate fees. Know the fee structure that your savings account has. Banks can charge fees for a variety of reasons, but many charge for maintenance, insufficient funds and dipping below a minimum balance. Some banks also charge transaction fees on savings accounts if you withdraw more than six times per month. By avoiding these unnecessary fees, you’ll make your savings efforts that much easier.
The number of savings accounts that you have depends on your preferences and what your financial goals are. Some people prefer to have one account per savings goal, while others like to combine all of their goals into one large account. It’s up to you and how you like to organize your money.
You can open some savings accounts without an initial deposit. Others may require a minimum deposit between $25 and $100. If you’re opening your account in person, you can use cash for your opening deposit, otherwise, a transfer from another bank account will suffice.
Opening a savings account is pretty straightforward. You’ll want to research which bank you’d like to open your account at and then gather the required identification documents. Once you apply, you’ll need to make a minimum deposit. If you think you’ll need help with this process, you may find it helpful to go in person to open your account.
A high-yield savings account is a savings account with an interest rate that is higher than a normal savings account. The higher the APY, the more interest your money will be earning you while it is sitting in the account. Many banks offer high-yield savings accounts, so you’ll want to research and find the one that works best for you.
If your application gets denied, see if you can determine why. A bank may deny you a savings account based on unpaid fees on another account or you were suspected of fraud on an account. You may be able to work with the bank to clear up any inaccurate information.
If you’re still denied, check and see if the bank offers any lower-risk accounts that may be suitable for your situation.
And lastly, if you feel that there is no reason why you would be denied, you can also raise a complaint to the CFPB.
