Opening a Savings Account
A savings account can be a great place to keep the cash you won’t be needing right away, like your emergency fund, savings for a large purchase, or money for an upcoming trip.
Here’s what you need to know.
Why you should open one
The main reason to open a savings account is to keep your money secure and to earn more than you would on a checking account (which generally pays no interest).
Yes, checking accounts are essential for day-to-day cash management. But the downside is they don’t typically earn any interest. So if you have a lot of cash parked in one – more than say, one or two months’ worth of spending – you probably aren’t getting the best bang for your buck. It’s time to consider a savings account.
But before we go any further, there is a slight catch.
Savings accounts aren’t intended for day-to-day transactions.
The number of withdrawals or transfers you can make is technically limited to six per month by US law. So it’s not necessarily where you would keep money for paying bills or other frequent payments. That’s really what your checking account is all about.
However, the restrictions can actually be a good thing. What?! YES! The whole point of a savings account is to put away money for FUTURE goals. So you won’t want to be dipping in frequently anyway. More optionality is not always good – especially when you feel the temptation to spend.
So where should you open it?
If you already have a checking account, your bank probably offers savings accounts too, so take a look and see what they offer. BUT, don’t just stop there.
For starters, other banks may offer more attractive interest rates. AND it’s not necessarily a bad idea to create a little separation between your savings and checking accounts. Again, it’s about limiting that temptation to spend it. You want your money accessible for when you need it, but not too accessible for when you just want it.
In general though, you’ll still want to shop around and compare offers.
Interest rates will vary form bank to bank. And banks also vary with respect to fees (in general avoid accounts that charge monthly fees, there’s really no need to be paying any).
High-Yield Savings Accounts
Currently, interest rates at traditional brick-and-mortar banks are fairly low (many pay less than 0.1%). This means you won’t be earning much of a return on your money.
However, online-only banks will often offer higher interest rates because they don’t have the same overhead expenses as traditional banks. And your money should still be just as safe.
So basically, these “high-yield” savings accounts can be a good option if you don’t care about having a physical location to go to.
Another thing to note – with these accounts it typically takes a few days to transfer your money to a checking account. So they aren’t great if you’ll need the money immediately. But that shouldn’t necessarily be a problem since, again, we’re talking longer-term savings.
Security – And no matter where you bank, you’ll want to make sure your account is protected by FDIC insurance, which protects deposits up to $250,000. Most banks have it, but you’ll want to be sure. (Credit unions have NCUA insurance instead, but it’s similar).
We’ve pulled together a list of five popular high-yield savings accounts and the interest rates they offer (all are FDIC insured). If you’re interested in learning more, click the Open Account button to go to the provider’s secure website. Poke around a little!
|Bank||Current Rates*||Minimum Balance||Start Saving|
*The rates listed, or Annual Percentage Yields, are advertised as of 4/2/21. They’re subject to change, so you’ll want to get more details directly from the providers at their respective websites before signing up.
What you’ll need to open an account
Opening a new savings account shouldn’t take too much time, but it’s still a good idea to get yourself a little organized first. Typically you’ll need; name, physical address, email address, date of birth, social security number, and a driver’s license or other valid ID.
If you’ll be linking the account to other bank accounts, like a checking account, you’ll need to have the routing number and account number for those accounts too (unless it’s at the same bank).
Some banks might require minimum deposits to open an account, but some don’t. You’ll want to compare different offers as you shop around and figure out what makes sense for you.
Making regular contributions to your account
Once you’ve set up your account, don’t just let it sit there! Make sure you’re making regular contributions. You can do this through automatic transfers from your checking account or you can set up direct deposit through work. You can even elect to have some of your paycheck go to your checking account and some go to your savings account – there are a lot of options.
The key is to find a method that works for you where you can regularly set aside money and not be tempted to spend it on things other than your specific goals. You CAN do it!
Alternatives to savings accounts
Savings accounts aren’t the only game in town if you want to get more from your money.
• Money Market Account – Money market accounts are similar to savings accounts. They offer higher interest rates compared to checking accounts but are also not intended for day-to-day use (restricted to six monthly withdrawals/transfers). Often banks will require higher minimum balances for money market accounts.
• CD (Certificate of Deposit) – With a CD, your money will be tied up for a specified period of time, or term, ranging from a few months to a few years. During that period, you can’t take your money out without incurring a penalty. The upside is they tend to offer higher interest rates since your money is locked up.
• Investment Account – If you’re looking to get even more out of your money, then it’s time to open an INVESTMENT ACCOUNT, like a 401(k), IRA, brokerage account, or robo-advisor. Investing is hands down the best way to grow your money over time. We can help you get started.
A savings account is a great place to keep your money safe and readily available, all while earning some interest. This makes it a money must-have if you want to take charge of your finances. The sooner you set one up and start saving, the better, so get to it!
Pro Tip: Bank interest rates will change over time. So once you’ve opened your account, it’s a good idea to periodically check in with your bank to make sure you’re getting the best rate possible (and don’t be afraid to mention what their competitors offer).
Anything else we can help you with?