No matter what your financial goals are, opening a savings account is a good idea. You won’t need a pile of money to open an account at many banks either. In some cases, financial institutions let you open a savings account without depositing any money.
Here’s how a savings account could be the right move for your finances.
Who should open a savings account?
If you are only using a checking account, your financial tool belt is missing a critical component — a savings account.
With a savings account, you can clearly separate funds from your normal spending for a few good reasons. You might want to save for the down payment on your first home, tuck away funds for your dream vacation or build an emergency fund to help you tackle any financial hiccups that life throws your way.
Without the clear designation of a savings account, it is all too easy for the money in your checking account to become an all-purpose fund where you spend more than you intended. But if the funds were safely stored in your savings account, you might think twice about delaying your other financial plans for any impulse buys, like a nice dinner or outfit.
When should you open a savings account?
The best time to open a savings account is as soon as possible.
“Everyone from children to seniors can open savings accounts, but they’re most effective when they’re started early,” says Jim Pendergast, senior vice president and general manager of AltLINE at The Southern Bank Co.
Starting earlier gives you more time to increase your savings before you’ll need it.
Benefits of a savings account
The importance of opening a savings account cannot be understated. But what are the specific benefits that come along with this choice? Here are the top advantages:
Excellent place to stash emergency funds
An emergency fund is a critical component of a healthy financial foundation. A savings account acts as an insurance policy against any sudden large or unexpected expenses, according to Scott Sturgeon, CFP and founder of Oread Wealth Partners.
“For example, if you lose your job, having six months of expenses in your savings account can mean the difference between missing a mortgage or rent payment and living comfortably while you find new employment,” Sturgeon says.
Separate spot to save for big expenses
As you save for a big expense, it can be tricky to stay motivated. It’s all too easy to want to spend any left over money in your checking account. That’s where a savings account can help.
“A savings account allows you to save for large things you want to purchase by keeping those funds siloed in a place where it’s harder for you to spend them,” Sturgeon says.
Federal regulation used to limit withdrawals to six a month, limiting the chances to derail your savings goals. Though the limit has been lifted, many banks still limit the number of transfers savings account holders can make.
Options to automate your savings
Not only is a savings account a separate spot to store your cash, but it also allows you to automatically add funds. With many savings accounts, you can even set up an automatic transfer of a portion of your regular paycheck.
“When you add money to your account via direct deposit, you can contact your financial institution about putting some of that money away into a savings account,” The Southern Bank’s Pendergast says.
As he sees it, the beauty of this option is that “you won’t miss the money that goes into your savings account, and you’ll have set up an automatic savings system.”
Secure way to store savings
The Federal Deposit Insurance Corp. protects up to $250,000 in your savings account at FDIC-insured banks. So, though you may not earn the best yields available, you’ll have the security that comes with insured funds.
How much money do you need to open a savings account?
The great news is that you won’t need a lot of money to open a savings account. Numerous financial institutions allow you to open a bank account without requiring a deposit.
Savings accounts at Citibank and Marcus by Goldman Sachs, for example, can be opened without a minimum deposit — but read the fine print. Some banks charge fees unless a certain amount is deposited into the account within a specified period.
Some banks will also require a higher deposit when you open the account. In general, a minimum deposit could be in the range of $25 to $100. But again, you can find banks without requiring you to deposit any cash.
How to open a savings account
Ready to open a savings account? Here’s how to do it.
Start by comparing saving account rates on Bankrate. Once you’ve selected the bank account, it is time to gather your documents. You’ll need the following information to open a savings account:
- Social Security number
- Date of birth
- Identification, such as a driver’s license
- Contact information
- Bank account information
After you fill out the application with information from these documents, you will have to wait until the bank reviews your application. It shouldn’t take too long for your new account to be up and running, possibly only minutes.
Should I open a savings account online or in person?
You’ll find that most banks will allow you to open your savings account online. You’ll likely run into banks that exclusively operate on the internet.
The choice to open a savings account online versus in person depends on your personal preferences. You can open a savings account without leaving the comfort of your home. If you can go with an online option, then you may be able to tap into better terms such as a higher interest rate.
But if you prefer the personalized touch of in-person banking, then a brick-and-mortar bank may be your best option.
What type of savings account is best for me?
If you’re not sure what kind of savings account is best, the answer likely boils down to what you want to get out of a savings account.
If you are looking for the absolute best interest rate, then you might opt for an online-only high-yield savings account, which tend to pay higher rates.
If you want to be able to talk to a local banker about any issues with your savings account, then a traditional bank with branches is probably a better fit.
If you want to access your savings immediately in case of an emergency, then you might want to open a savings account where you already have a checking account.
As you explore your options, take advantage of Bankrate’s analysis of savings accounts to help you find the best one out there.