Savings Accounts: A Guide to Building Up Your Funds
Seven strategies for initiating a savings account:
A savings account serves as a safe haven for your emergency fund or funds earmarked for short-term financial objectives. These can be found at almost every bank and credit union in the U.S. They provide an opportunity to grow your savings through the interest they generate.
Opening a savings account can comprise several steps, including shopping around for minimal fees and competitive yields, gathering essential documents, and setting up online banking.
Setting up Your Savings Account: Step-by-Step
Opening a savings account is generally simple, although it may involve several steps.
1. Select the Savings Account Best Suited for You
Before creating an account, it's crucial to choose the right bank. Key factors to consider can include:
- Competitive Annual Percentage Yield (APY)
- Low or no minimum balance requirement
- Low or no monthly fee, or one that's easy to avoid
- Accessibility of fee-free ATMs
- Accessibility of branches
- Availability of online and mobile banking services
- Insurance coverage from the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA)
Some banks may offer more than one savings account option. When considering multiple options, compare them based on the factors listed above, and pay attention to any unique features specific to each account.
Mary Hines Droesch, Head of Product for Consumer and Small Business Products at Bank of America, recommends choosing an account that aligns with your goals, such as one that automates the savings process for you.
2. Gather Required Documents
To open a bank account, you'll need to provide personal information and supporting documents. Make sure you have the following information at hand, both for you and any joint account owners:
- Government-issued identification (e.g., driver's license, passport)
- Social Security number
- Date of birth
- Address (and proof of address, if your ID doesn't list your current address)
- Contact information
- Bank account information to fund your new account, if applicable
You may need to lift a credit freeze before opening a new account, if you've placed one on your credit report.
3. Choose a Joint or Individual Account
Pick an individual account if you wish to have a savings account for yourself. A joint account is one owned with another person, like a spouse or child.
Joint accounts have benefits, such as:
- Easier access for your spouse or child to shared funds.
- Higher FDIC or NCUA insurance coverage (up to $500,000 instead of $250,000) due to each account holder receiving $250,000 in deposit insurance coverage.
4. Complete the Application
Finish your application with complete and accurate information, and submit it for bank approval. This process usually takes shortly, from a matter of minutes to a few business days.
5. Fund Your Account
An initial deposit may be necessary when establishing a savings account. Accounts with a minimum opening deposit typically require an amount between $25 and $100. You can usually fund the account using cash or a check, if opening in person. To deposit funds electronically, you can often make a mobile check deposit or transfer funds from linked accounts.
6. Add a Beneficiary
A beneficiary is the person who will receive the funds in your deposit accounts—including savings accounts and certificates of deposit (CDs)—upon your death. It's essential to name a beneficiary to ensure your money is directed to the intended recipient.
The same applies to joint deposit accounts. Although the surviving account holder will gain sole ownership following your death, you should still name a beneficiary in the event that both account holders pass away.
7. Craft a Saving Plan
Opening a savings account is merely the first step in your journey to building wealth. To make the most of your account, create a savings plan. Some tips to get started include:
- Establish specific savings goals.
- Develop a budget to help you realize your goals.
- Set up automatic savings by scheduling periodic transfers from your checking account to your savings account, or split your direct deposit to automatically fund your savings account.
Can You Open a Savings Account Online?
Most banks and credit unions allow their customers to conduct their banking online, and this includes opening new accounts. While some banks maintain physical branches, you may be required to open an account online if it's an online-only bank.
Online-only banks frequently provide the best savings account options, such as low minimum balances, low or no maintenance fees, and high APYs. This makes online savings accounts suitable for those comfortable conducting their transactions through a computer or mobile device.
Choosing the Best Savings Account
To secure the best high-yield online savings account with low fees and high APY, focus on several essential factors:
APY
Higher APY leads to faster savings growth.
Fees
Some banks impose monthly maintenance fees, which can eat away at your savings if not avoided. Maintenance fees are typically waived when you meet certain requirements, such as making a minimum number of transactions per statement cycle, maintaining a balance above a set threshold, or setting up direct deposit.
If you deposit $500 into an account with a $5 monthly fee and don't make additional deposits, by the end of the year, you'll have only $440—representing a loss of over 10% of your initial balance. Opt for an account with no monthly fee to eliminate such charges that erode your savings balance.
It's essential to know if there's an early closeout fee, in the event you anticipate not maintaining the account for an extended period. Banks that impose such fees typically do so for accounts closed within the first 3 to 6 months of opening.
FDIC Insurance
It's crucial to consider banks and credit unions with FDIC or NCUA insurance coverage, which protects deposits up to the maximum allowed by law. Both the FDIC and NCUA insure deposits up to $250,000 per depositor per bank or credit union per ownership category.
Purpose of Saving
Your choice of savings account, as well as the bank, may depend on the goal of your savings efforts.
If you aim to build an emergency fund requiring ready access, it is preferable to open an account with a bank where you already have a checking account.
If your objective is to save for an upcoming goal—such as a car or a home down payment—and you don't require immediate access to funds, it may be advantageous to compare rates, which could be found at online banks. A higher APY can help you reach your goal faster.
What If You Can't Open a Savings Account?
Sometimes, a bank may deny a new savings account application. This may happen for various reasons, such as outstanding bank fees or a history of bounced checks.
Many banks utilize ChexSystems, a consumer reporting agency, as part of their decision-making process. If your bank uses ChexSystems and you are denied an account, you can request a disclosure report to learn why, as well as dispute any inaccuracies.
If your banking history hinders you from opening a savings account, consider a bank offering second-chance accounts. While not identical to a savings account, second-chance accounts are generally more accessible. They usually include standard checking account features, such as ATM access, bill pay, and mobile banking. After maintaining your account in good standing for a specified period (often 12 months), you will be eligible to upgrade to a standard checking or savings account.
In Conclusion
Savings accounts are invaluable tools for people aiming to set aside funds for different objectives or establish an emergency fund. Take the time to closely evaluate various options, including traditional and online banks, and search for the account that offers the highest APY at the lowest cost. Careful comparison shopping can boost the returns on your savings.
[1] Source: U.S. News (https://money.usnews.com/money/personal-finance/banking/)[2] Source: Investopedia (https://www.investopedia.com/terms/a/annualpercentageyield.asp)[3] Source: CNN Business (https://www.cnbc.com/2020/08/24/high-interest-savings-accounts-what-to-look-for.html)[4] Source: Forbes (https://www.forbes.com/advisor/banking/online-savings-accounts/)[5] Source: SoFi (https://sofi.com/bank/online-savings/)
Setting up Your Savings Account: Step-by-Step involves choosing a bank with competitive Annual Percentage Yield (APY) and low or no fees. To open a savings account, one needs to gather essential documents, such as government-issued identification, and complete the application. It's advisable to name a beneficiary and create a savings plan to make the most of the account. Online-only banks may provide the best savings account options.
In the personal-finance and banking-and-insurance industry, it is crucial to consider FDIC or NCUA insurance coverage when choosing a savings account. The purpose of the savings may dictate the choice of account and bank. If one aims to build an emergency fund, it is preferable to open an account at a bank where they already have a checking account.
If denied a savings account due to outstanding fees or a history of bounced checks, one can request a disclosure report from ChexSystems to learn why and dispute any inaccuracies. If a banking history hinders one from opening a savings account, consider a bank offering second-chance accounts as a more accessible alternative.
