How to Open a Savings Account
If your financial to-do list includes building an emergency fund, saving for a short-term goal, or simply moving cash that has been sitting in your checking account earning no interest, there is no better time than now to open a savings account.
A savings account is an interest-bearing deposit account, meaning the bank pays you interest when you keep a balance with them. While the amount of interest paid on deposits can vary and change at any time, some banks now offer savings accounts that yield over 5% annually.
How to Open a Savings Account
You can typically apply to open a savings account online, over the phone, in person, or by mail, depending on the bank. Here are four steps required to open a savings account.
Step 1: Compare Your Options
Use resources like the best savings accounts on CNET or the best high-yield savings accounts, and compare the savings accounts offered by several different financial institutions. Pay close attention to features, rates, fees, and requirements to ensure you choose the right option.
Step 2: Complete the Application
The bank will likely need your full name, date of birth, Social Security number or Individual Taxpayer Identification Number, and your address along with other contact information. Be prepared to provide government-issued identification (or scan a copy for online banks). If you’re applying for a joint account, you’ll also need to provide identification for the other applicant.
Step 3: Fund Your Account
After following the instructions provided by the bank, transfer the required amount at a minimum to establish your account. You may want to set up automatic deposits at this stage if building your savings fund is important to you.
Step 4: Set Up Your Online or Mobile Account
Many banks provide digital tools that allow you to access your account remotely. Whether it’s through an app or a website, you’ll need to follow the provided instructions to gain access. This might involve downloading an app on your mobile device or calling the bank to set up your username and password.
Types of Savings Accounts to Consider
There are four main types of savings accounts that offer a safe and low-risk place to store your money for emergency savings or other goals.
Traditional Savings Account
You will usually find a traditional savings account at large banks or local credit unions that have branches. You likely won’t earn much interest compared to the national average – 0.46% according to the FDIC – but you will have access to ATMs for depositing and withdrawing cash. Many of these accounts are capped at six monthly withdrawals, although withdrawals from ATMs may be exempt from this limit.
High-Yield Savings Account
A high-yield savings account, like a traditional savings account, is a safe option for storing savings, but it offers rates that are up to 11 times higher than the national average. High-yield savings accounts are mostly found at online banks, credit unions, and neobanks (modern banks that offer all banking services online or through a mobile app). In this case, you should be comfortable managing your account online or using mobile devices.
Certificate of Deposit
A certificate of deposit, or CD, usually offers a higher interest rate than a savings account but locks your money away for a specific period. For example, you might buy a five-year CD and earn a higher rate than a traditional savings account, but you cannot touch that money for five years without incurring an early withdrawal penalty.
They require
This penalty is to forfeit all or part of the interest you have earned and typically ranges from 90 to 365 days of interest, depending on the term of the certificate.
Money Market Accounts
Money Market Accounts fall between certificates of deposit and savings accounts in terms of interest rates and liquidity. Money Market Accounts typically have a higher minimum balance than a standard savings account and may offer some checking privileges. However, a Money Market Account may require a much higher initial deposit than a savings account and can impose monthly fees if your balance falls below the required minimum.
It is also common for a Money Market Account to limit the number of transactions to no more than six transactions per month before charging an excessive withdrawal fee.
What to Consider When Opening a Savings Account
The best savings account for you depends on your individual financial needs and preferences. But generally, here are the factors to consider:
Interest Rate and Annual Percentage Yield
The higher the rate, the better. The interest rate tells you how much the bank pays you for depositing your money with them, and the annual percentage yield indicates the amount of interest you will earn on your balance over the year if interest is compounded.
The Federal Deposit Insurance Corporation (FDIC) regularly updates the average yields of savings accounts on its website. High-yield savings accounts offer much higher returns than average.
Fees
Bank fees can eat into your savings potential. While they may seem insignificant individually, they can add up over time and work against your savings goals. Some banks – typically traditional financial institutions – may charge monthly maintenance fees, which can sometimes be waived by meeting certain conditions. Other fees to watch out for include ATM fees, foreign transaction fees, account closure fees, and overdraft fees. Some banks even charge you if your balance falls below the required minimum.
It is best to avoid accounts that charge many fees. There are numerous banks and credit unions that offer savings accounts with no monthly fees or provide reimbursements for fees charged by third-party ATMs. After all, every dollar you avoid in fees will continue to grow with interest and add to your balance.
FDIC or NCUA Coverage
Savings accounts at banks and insured credit unions are protected in the event of bank failure up to $250,000 per individual, per institution, and per account category either by the FDIC or the National Credit Union Administration (NCUA). Most experts recommend keeping your savings account balance below the maximum coverage limit in case your bank goes bankrupt.
Account Accessibility
Access to a savings account varies by financial institution. Some banks are online-only and have no physical branches. This works well if you are comfortable banking in a completely digital environment, as you can access your account 24/7 virtually. Many of the largest banks maintain a significant number of branches across the country while offering mobile and online banking services using the latest technology. These large banks like Capital One and Chase offer the convenience of online banking with the option for personal assistance at a bank branch. When looking for a savings account, make sure to note what is available through the bank’s mobile banking services and how many free ATMs the bank offers.
Limits
The minimum for the opening balance
The minimum deposit – any amount of money you’ll need to fund your savings account – varies between banks and can range from zero to $1,000 or more. Online banks typically have lower minimums due to lower overhead costs. Choose an account that requires a minimum initial deposit that aligns with the cash you currently have.
Can a savings account application be denied?
Unfortunately, yes. Your application to open a savings account can be denied if negative information appears in your ChexSystems or Early Warning Service reports. Both are consumer reporting agencies that document your banking history.
Types of negative information that may show up on your report include overdrafts, accounts that were left with a negative balance, or evidence of gaming – opening and closing accounts quickly to earn a new account bonus. The bank or credit union may use the negative information gathered from either of these reports to deny your application.
If your application is denied, the first thing you should do is contact the bank to find out why. You may need to provide additional personal information or dispute inaccurate information returned from ChexSystems or Early Warning Service. If possible, correct the negative report by addressing any issues with accounts at other financial institutions before proceeding with a new savings account application.
Conclusion
Opening a savings account is a great way to grow your money while keeping it safe. Using a savings account to create an emergency fund or achieve a short-term goal is ideal since these accounts provide flexible access to help you reach your savings goals faster.
Look for FDIC or NCUA coverage and the highest insured annual yield available while avoiding fees. Although savings accounts are a fundamental part of any savings strategy, there are additional types of savings accounts that offer different features to suit a variety of savings goals.
Correction: There was a previous version of this article that was assisted by an AI engine and incorrectly stated the full name of the FDIC. It is the Federal Deposit Insurance Corporation. This version has been significantly updated by a staff writer.
Source: CNET
Source: https://www.cnet.com/personal-finance/banking/savings/how-to-open-a-savings-account/
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