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By TJ Porter, Bankrate
Opening a savings account is an important step on the path toward a healthy financial life.
Almost every bank and credit union in the U.S. offers a savings
account. These accounts are not only a great way to keep your money
safe, but they help grow your savings through the interest they pay.
If
you want to open a savings account, whether you're saving for a
specific goal or want to set some cash aside for a rainy day, this
step-by-step guide will help you get started.
How to open a savings account (step-by-step)
Banks and credit unions do their best to make it easy to open a savings account. Here are the steps you usually have to take.
1. Compare your options
There
are many financial institutions that offer savings accounts. Before you
open your account, make sure you've chosen the right bank for your
needs. Look for some of these key features when making your choice:
- Competitive interest rate
- Low or no minimum balance requirement
- Low or no monthly fee
- If there's a monthly fee, is it easy to avoid?
If you already have a checking account, it's often easy to open a savings account at the same bank. Still, it's worth comparing other options to make sure your bank is offering a reasonable deal with competitive terms.
2. Gather required documents
When
you open any bank account, you'll need to provide some information
about yourself, as well as some documents. Make sure you have the
following information ready when you go to open the account in-person or
online.
- Identification, such as a driver's license or passport
- Social security number
- Date of birth
- Address (and a proof of address, if your ID lists a previous address)
- Contact information
- Bank account information to fund your new account, if applicable
3. Choose a joint or individual account
If
you're opening an account for yourself, open an individual account. If
you're opening a savings account with another person, such as your
spouse or your child, you should open a joint account.
Joint accounts offer a few benefits.
- Easier for your joint account holder to access the funds in the account
- Higher level of FDIC insurance (up to $500,000 instead of $250,000)
The joint account holder should bring the same documentation when you open the account.
4. Fund your account
In opening a savings
account, you will need to make an initial deposit. If you're opening the
account in person you can usually do this with cash or a check. The
catch is that some banks have a minimum opening deposit requirement.
Typically, the minimum deposit is in the range of $25 to $100. Depending
on your financial situation, it might be hard to come up with the cash
required to open an account.
On top of the minimum opening
deposit, some savings accounts charge a monthly maintenance fee that can
eat away at your savings. To avoid these fees, many banks require that
the account holder have a minimum balance of a few hundred dollars.
When
you're opening an account, make sure you deposit enough to meet the
minimum opening deposit and keep a big enough account balance to avoid
any maintenance fees.
5. Submit your application
Submit
your application with all of the required information and wait for the
bank to open your account. This usually happens quickly, and you can
start making additional deposits and withdrawals within a day or two.
6. Set up online banking
Almost
every bank and credit union offers some form of online banking these
days. It makes it very easy to check your balance, transfer money, and
manage your account. Sign up for an online banking account and download
the bank's app to your phone for on the go access.
Can I open a savings account online?
Most
banks and credit unions let their customers do their banking online,
and that includes opening a new account over the internet.
Some
banks operate solely online and don't have any physical locations. That
means that you can open a savings account without ever leaving your
home.
Many online-only banks offer the best savings account deals,
with low minimum balances, low or no maintenance fees, and high
interest rates. Some of the top online banks,
like Ally and Radius, pay rates over 1 percent and charge no
maintenance fees. They also claim that it takes just minutes to open an
account.
If you're tech-savvy and don't mind doing all your
banking from a phone or computer, online savings accounts are a great
choice. People who are more comfortable with doing their banking
in-person might be better off with a traditional bank.
How to choose the best savings account
Choosing the best savings account is important because the right account can help you make the most of your savings.
Interest rate
One
of the top things to look for is the interest rate. The higher the
rate, the faster your savings will grow. Consider this example:
You
have $10,000 to save and open a savings account at a bank that pays
0.10 percent APY. Over the course of a year, you'll earn $10 in
interest. If you choose an account that offers 1.10 percent APY, you'd
earn $110 instead, or $100 more per year.
Fees
Monthly
fees are another important consideration. Some banks charge a monthly
maintenance fee unless you meet certain requirements. Typically, the
requirements involve making a minimum number of transactions or
maintaining a balance above a threshold amount.
If you deposit
$500 to an account that charges a $5 monthly fee, by the end of the year
you'll have $440, a loss of more than 10 percent of your initial
balance. Your money might not be as safe as you think it is if you have
to worry about fees eating away at your balance. Look for accounts with
no monthly fee.
Reason for saving
Finally, consider your reason for saving.
If
you want to build an emergency fund that you can access at a moment's
notice, opening an account with the bank that you have a checking
account with makes a lot of sense.
If you're saving for a specific
goal and don't need easy access to the funds, it makes more sense to
shop around for the best rates or to choose an online bank. You can get a
better interest rate, which accelerates your progress toward your goal.
Bottom line
Savings
accounts are valuable tools for people who want to set aside extra cash
for a goal or a rainy day. Consider all of your options, including
small local banks and online banks, and look for the account that offers
the best interest rates at the lowest cost. Taking the time to do some
comparison shopping can save (or make) you a lot of money.
See more at Bankrate
