Opening a Savings Account in 2023

Jacqueline DeMarcoUpdated February 15, 2023

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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.

A savings account can be a great place to park your money for a later date, separate from your everyday spending money. These accounts pay interest (and rates are currently on the rise), keep your money safe, and allow you to access your cash when you need it. What’s more, you can often apply for, and manage, your account completely online. Here’s what you need to know about applying for a savings account, from how to choose the right bank for your needs to fees and restrictions to watch out for.

What Is a Savings Account?

A savings account is a deposit account that’s designed for holding money that isn’t earmarked for day-to-day use, like spending and paying bills. These accounts pay interest to help your money grow, and can be ideal for short-term savings goals, like building an emergency fund, paying for a vacation, or making a down payment for a home. The funds in a savings account are liquid. However, they are generally less accessible than the money in a checking account. Checks can’t be written against them, and you’re often limited to six withdrawals or transfers per month. If you exceed the bank’s transaction limit, you’ll likely be charged a fee.Savings accounts are federally insured up to $250,000 per account holder, so you can’t lose your money even if the bank goes belly up.You can find savings accounts at traditional banks, credit unions, and online-only banks.

Pros and Cons of Savings Accounts

Pros	Cons
Earn interest	May come with monthly fees
Are insured up to $250,000	Returns can be lower than accounts with more restrictions or risk
Can help you reach short-term savings goals	May need to maintain a certain minimum balance
Money is accessible	May be limited to six withdrawals per month

Here’s a look at some of the key advantages of a savings account.

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.

There are also some disadvantages associated with savings accounts that are worth keeping in mind. These include:

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?

Yes, it’s usually free to open a savings account. However, some banks charge ongoing maintenance fees and/or fees for going below a certain minimum balance or exceeding a certain number of withdrawals. As a result, you’ll want to read all of the terms and conditions before opening an account. You might also be required to make an initial deposit (often between $25 and $100) to open up a savings account.

5 Steps to Opening a Savings Account

Not sure how to open a traditional or online savings account? Here’s a simple step-by-step.

1. Find a Bank

It can be smart to shop around and compare annual percentage yields (APYs), looking at both large, traditional banks as well online-only banks. You’ll also want to look at, and compare, any potential fees, minimum balance requirements, and helpful features (like a user-friendly mobile app) before deciding where to open your savings account.

2. Proof of ID

Whether you’re opening an account in person or online, you will typically need to show two forms of identification. This can include:

Driver's license
Passport
Military ID
Social Security card
Birth certificate

If you own your own business, keep in mind that business bank accounts can require additional documentation.

3. Proof of Address

To show proof of your address, you can typically use a:

Mortgage or lease document
Utility bill
Bank statement
Credit card statement

4. Fill Out an Application

Depending on the bank, you may be able to apply online, by phone, or in person. Whichever way you choose, you’ll need to provide all of your identification and contact details, including your first and last name, phone number and address, date of birth, social security number, and email address. You’ll also be asked to review and then accept the terms and conditions. This is a good chance to make sure you have selected an account that earns competitive rates and has no or low monthly service charges.Once you submit your application, you may get an acknowledgement within minutes when you apply online. However, it can take between two and five business days for the bank to verify your information, open the account, and give you access.

4. Make Your Initial Deposit

Many (but not all) banks require that new account holders make an initial deposit to officially open their accounts .If you’re opening the account in person, you can usually fund the account with cash or a check. To deposit money electronically, you can often make a mobile check deposit or link and then transfer funds from a different account.If the account has a required minimum opening balance and/or a required monthly balance, you’ll want to make sure you put at least that amount into the account.Recommended: A Guide to Passbook Savings Accounts

Do You Get a Debit Card When You Open a Savings Account?

Not typically. Debit cards are generally only associated with checking accounts. Debit cards are designed to make it easy to get cash and make payments using your checking account. Because savings accounts are designed for savings, rather than spending, they generally don’t come with debit cards.

Choosing a Savings Account

The best savings account for you will depend on your needs and financial situation. Here are some criteria you may want to consider as you compare your options.

Fees

Some savings accounts come with certain fees. Here are some common ones to look (and look out) for:

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.

Rewards

You may come across “rewards savings accounts'' as you shop for a savings account. These types of savings accounts give you something besides interest for saving money. To encourage you to grow your savings and stay loyal to the bank, they offer incentives such as:

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

Interest Rates

To find the savings account with the highest interest, you’ll want to compare APYs. This stands for “annual percentage yield,” and tells you how much interest a bank account earns in one year. An APY includes the effect of compounding interest, which is when both your principal and the accumulated interest earn interest. Compounding helps your cash grow faster than simple interest, which pays interest only on the principal. A savings account with the highest APY grows faster than an account with a lower yield.Recommended: How to Exchange Coins for Cash

The Takeaway

A savings account can be a valuable tool for setting aside money for a short term goal, like an emergency fund, vacation, or wedding. Fortunately, opening one is quick and easy, and you can often do it without even leaving home. With online banks, as well as many traditional banks, you can apply online, often in just 15 minutes or so.But before you do, it’s a good idea to do your homework. Compare all of your options, including online banks, local banks, credit unions, and national banks to find the best interest rates at the lowest cost.

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.

Photo credit: iStock/SDI Productions

Frequently Asked Questions

What documents are required to open up a savings account?

Is it possible to open a savings account without a checking account?

Can you open up a savings account completely online?

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About the Author

Jacqueline DeMarco

Jacqueline DeMarco is a personal finance writer and editor based in Southern California. While she spends the bulk of her time writing about complex financial issues, she also tackles a variety of subjects ranging from food to fashion to travel. Her work can be found across dozens of publications such as Credit Karma, LendingTree, Northwestern Mutual, The Everygirl, and Apartment Therapy.

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