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 benefit of a savings account over a checking account is that they typically earn more interest on your money (most checking accounts pay no interest at all).
So if you have a lot of cash sitting in a checking account – more than one to two months’ worth of spending – you probably aren’t getting the most out of your money and should consider a savings account.
But there is a catch. Savings accounts aren’t intended for day-to-day transactions. The number of withdrawals or transfers you can make is 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 for your checking account.
However, the restrictions can actually be a good thing. The whole point of a savings account is to put away money for future goals. So you won’t want to be taking money out frequently anyway.
Where to open it
If you already have a checking account, your bank probably offers savings accounts too, so take a look. But, you may want to open it at a different bank if you think you’ll be tempted to spend the money. Having a little separation between the two accounts can make it easier to stick to your goals.
And in general, 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 (you should try to avoid accounts that charge monthly fees).
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 banks are able to offer significantly higher interest rates – often around 2% or more – because they don’t have the same overhead expenses. And your money is just as safe with them.
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 we’re talking about longer-term savings.
And no matter where you bank, you’ll want to make sure your account is protected by FDIC insurance. It 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.
|Bank||Current Rates*||Minimum Balance||Start Saving|
*The rates listed, or Annual Percentage Yields, are advertised as of 10/19/20. 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 a good idea to get organized first. Typically you’ll need the following; name, physical address, email address, date of birth, social security number, and a driver’s license or other valid ID.
If you’ll be looking to link 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 require minimum deposits to open an account, but some don’t. You’ll want to compare different offers as you shop around.
Contributing to your account
Once you’ve set up your account, you’ll want to make regular contributions to it. 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.
The key is to find a way to regularly set aside money and not be tempted to spend it on things other than your specific goals.
Alternatives to savings accounts
We should also mention that savings accounts aren’t the only game in town if you want to get a little more out of your money than what a checking account offers.
• 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, you may want to open an investment account, like a 401(k), IRA, brokerage account, or robo-advisor. These offer more opportunity to earn a higher return but also come with more risk. 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.
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