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Opening a savings account is an important part of any responsible savings plan, and although the various options may seem confusing at first, understanding how a savings account works is really not that complicated.
Read through the information presented on this page in order to learn how to open a savings account.
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Introduction
- One of the most basic tools that you can use to help manage and further your savings goals is, of course, a savings account. Not only do savings accounts provide a safe, secure and convenient place for you to store the money you've saved, they can also (in certain instances) even help build your savings. If you don't have a savings account, it's time to set one up! If you already have a savings account, keep reading to make sure that you have the right one to meet your needs.
What Is An Interest Rate?
- Besides the security that comes from keeping your money with a large, federally-insured lending institution, the other main benefit of a savings account is the interest that you can collect on the money you have in your savings account. For the privilege of using your money to lend to others, banks will pay you a percentage of interest on the money that you choose to keep with them. For instance, if your interest rate is 1% and you have $1,000 in your account, then you will earn $10 each year that you have your money in the account. While this may not seem like a lot, the more money that you keep in your account and the higher the rate of interest that you receive, the more money that you will add to your account. The interest rate that you receive will depend on the bank you choose as well as the type of savings account you open.
Choosing a Bank
- Choosing the right bank is much like choosing any other service provider. You're looking for one that offers the right combination of services to meet your individual needs and competitive rates to ensure that your money is being as productive as possible. Here are a few things that you should consider when choosing which bank to open a savings account with:
- Accessibility: Since banking is an integral part of your everyday life, you will want to choose a bank that is accessible. Choosing a bank that has branches near where you live and work will make using and maintaining your savings account much more convenient.
- Services Offered: Not all banks offer the same types of savings accounts. When researching potential banks, make sure to find out if they offer the specific type of savings account that you are interested in.
- Customer Service: While you may not need to interact with bank personnel directly every time you use your savings account, you will need to rely on their customer service at some point. When inquiring about a savings account at different banks, take note of how friendly, knowledgeable, and helpful their staff is.
- Interest Rates: Different banks will offer different interest rates for their savings accounts, so it's always a good idea to compare the interest rates that each bank offers for the different types of savings accounts.
Banks Vs. Credit Unions
- An alternative to opening a savings account with a traditional bank is to open one with a credit union. Credit Unions differ from banks in that they are usually non-profit institutions that serve a specific segment of the population (i.e. "Teacher's Credit Union" or "State Employees Credit Union"). If you qualify to be a part of one of these credit unions, it can be a good idea to research the rates and benefits that they offer.
Choosing a Savings Account
- Not all savings accounts are created alike. Here are some of the most common types of savings accounts:
- Basic Savings Account: This is the most basic type of savings account that banks will usually offer. People can deposit and withdraw money from their account, the balance of which usually earns a minimal rate of interest (usually around 0.5 - 1% yearly). While savings accounts usually don't allow you to write checks or to take money out of an ATM, this can be a good thing when you're trying to save money.
- High Yield Savings Account: High yield savings accounts usually offer better interest rates than regular savings accounts (sometimes 2% more), but come with more restrictions. Most high yield savings accounts have a minimum balance requirement and limit the amount of transactions that you can make each month. If you have enough money and don't see yourself needing to take money out of your account on a regular basis, this can be a good option.
- Money Market Account: In general, money market accounts usually pay a higher interest rate than regular savings accounts (and often give you a higher rate for a higher balance), although they carry many of the same restrictions as a high-yield savings account. They do, however, offer you the ability to write checks if you want.
- Online Savings Account: With the recent emergence of online banking, many institutions have begun to offer high-interest online savings accounts (anywhere from 4 - 6%). The reason that these institutions can afford such a high interest rate is because, since all of your banking is done online, they usually don't have pay the high overhead costs associated with operating a bunch of actual brick-and-mortar bank branches. Companies such as ING and HSBC Direct can help your money grow even faster than with a traditional savings account.
Things to Consider When Choosing a Savings Account
- Minimum Balance Requirements: Some savings accounts require you to keep a minimum balance in your account at all time and will penalize you if you fall below that amount. Make sure that, if your account does require a minimum balance, you have enough money to meet that balance on a continuing basis.
- Monthly Fees: Banks will sometimes charge a small monthly fee for you to have a savings account, although most will waive that fee if you keep up a minimum balance. You will also want to find out if they charge extra for withdrawals, transfers or other transactions.
- Interest Rates: As discussed above, the interest rates that are offered by different savings accounts can vary widely. Make sure to research different banks to find the best interest rates.
- Access to Your Money: Banks have different rules when it comes to how you can access the money in your savings account. While most don't allow you to write checks with a savings account, some may allow you access to make withdrawals via an ATM card. Online banks that don't have any physical branches often require you to transfer money back into your checking account before you can access it (which usually involves waiting a few days for processing). When choosing an account, make sure to consider how often you may need to access your money.
Conclusion
- Being able to successfully save money is one of the keys to establishing your financial stability, and opening a saving account is one of the best ways to do this. Whether you're a high-school student looking to open your first savings account or a retiree looking to get the most out of your savings, spending time to find the right savings account for your needs is extremely important. So, get all the information you can, open up a savings account, and start saving!
Resources for How to Open a Savings Account
- Wikipedia: Savings Account
- eHow: How to Choose a Bank
- HowStuffWorks: How do Savings Accounts Work
- Get Rich Slowly: Which Online High Yield Savings Account is Best?
- Consumer Savvy Tips: The Credit Union Vs. the Bank
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