Opening a Savings Account in 2023
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
What Is a Savings Account?
Pros and Cons of Savings Accounts
Safety The Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA) insure savings accounts This means you’ll receive up to $250,000 should the bank or credit union fail. Interest. The money you keep in a savings account earns interest and compounds, meaning you earn interest on the interest that’s added to the account, helping your money grow over time. Online high-yield savings accounts typically offer the highest interest rates. Ideal for short-term savings goals Savings accounts can be a good way to save for things you want to pay for the next few months to a year, such as a vacation or wedding. If you were to put this money into a risky investment like stocks, there’s a chance you could lose money in the short-term. Funds are accessible. Unlike some other savings vehicles, it’s easy to access your money or transfer it to your checking account when you need it. There are no holding or waiting periods, and you don’t have to sell investments in order to get your money out. Withdrawal limits Savings accounts typically have restrictions on how often you can make withdrawals or transfers. While federal rules restricting savings account owners to six withdrawals per month have been suspended, banks and credit unions can still cap the number of withdrawals or transfers you’re allowed to make and charge fees if you exceed the max. Interest isn’t that high Traditional savings accounts generally pay more interest than checking accounts, and high-yield accounts pay significantly higher rates than basic savings accounts. However, these accounts typically don’t pay enough interest to hit long-term savings goals, like retirement or a child’s college education. For that, you may want to consider riskier investments like stocks or mutual funds. Fees Some banks charge monthly maintenance fees and/or other fees, which can eat away at your earnings. Minimums Some savings accounts require a minimum initial deposit to open the account, as well as ongoing minimum balance requirements. If you fall below the threshold, you may not earn the expected interest rate and/or have to pay a monthly fee.
Is Opening a Savings Account Free?
5 Steps to Opening a Savings Account
1. Find a Bank
2. Proof of ID
Driver's license Passport Military ID Social Security card Birth certificate
3. Proof of Address
Mortgage or lease document Utility bill Bank statement Credit card statement
4. Fill Out an Application
4. Make Your Initial Deposit
Do You Get a Debit Card When You Open a Savings Account?
Choosing a Savings Account
Monthly maintenance fee Banks charge this fee to make up for the cost of maintaining your account. It will be charged every single month when your statement closes. However, some banks don’t charge this fee or will waive it as long as you keep a certain minimum balance in the account. Excess withdrawal fee Banks typically restrict the number of withdrawals you can make per statement period to six to encourage saving over spending. If you exceed the bank’s maximum, you’ll likely pay an excess withdrawal fee. Inactivity Fee Even though these accounts are meant for saving and not spending, some banks charge inactivity fees. This might kick in after a certain amount of time, often 12 months, with no transactions taking place in the account.
Tiered rates, with higher balances earning premium rates Cash bonuses for opening a new savings account Annual savings bonuses Discounts on safe deposit boxes Rewards on purchases when you link your savings account to a rewards checking account
3 Money Tips
To get into the savings habit, consider having 10% of your paycheck directly deposited into your savings account. Or, set up a small automatic recurring transfer from your checking account into your savings account on the same day each month. An emergency fund is a key financial safety net. Aim to have three- to six-months worth of living expenses tucked away in a separate account that earns interest, but allows you to access the money if needed (such as a high-yield savings account). To set up a simple monthly spending budget, consider the 50/30/20 rule. This involves splitting your after-tax income into three categories of spending: 50% on needs, 30% on wants, and 20% on savings.
Frequently Asked Questions
About the Author
Share this article: