Savings accounts are one of the most popular types of accounts in America. They are designed to stash your money and earn interest at the same time. If you are interested in learning more about savings accounts, take a look at this guide!
Along with checking accounts, savings account are the most common accounts in the US. Those who want to save money and make it grow at the same time should learn more about savings accounts.
Here's a short guide that explains its main features, its pros & cons and details of what you need to open your own savings account. Check it out!
Main features of a savings account
Savings accounts are known for two particular features: They are the best place to store your money and, at the same time, make more money. How? They usually offer higher interest rates than checking accounts.
Before running to your bank branch to open a savings account, you should first understand how do they work. Check this guide and learn how interest works.
The interest in a savings account
As you may know, interest is the cost of borrowing money. In the case of savings account, the one borrowing your money is the bank and it pays you interest in return.
The bank will determine the interest rate, which sets the amount of money it will pay you. The annual percentage yield (APY) will help you determine how much money you will earn in interest every year.
The APY bases its numbers on the interest rate and the interest compounds (daily, monthly or annually).
When researching the best banks to open a savings account, one of the main things you should compare is the APY they offer, besides the fees and conditions. Bear in mind that online banks usually offer higher interest rates and no minimum account balance requirements or fees.
Now that you know how interest works in a savings account and what you should consider while doing your bank research, you can define your savings goals!
What to check before you open a savings account
- Interest rates: This is the main factor you should analyze while considering savings account options. The thing is that interest rates aren't usually too high in this type of account, so you won't be growing your money in a short period. If you are deciding between two or three options, the best thing would be to go for the one that offers a higher interest rate.
- Monthly fees: Several banks charge monthly fees to a savings account, although in many cases you can keep a minimum balance to avoid those fees. So, while you are searching for the best bank to open your savings account at, check that your options don't involve any monthly fee.
- Minimum opening deposit: Another factor you should check before opening a savings account is they require a minimum opening deposit. Many banks will ask you for a deposit for opening your account, but you should definitely look for those that don't!
- Automatic transfers: Search for those banks that offer this feature. This will automatize your deposits from your checking to your savings account and help you save a fixed amount of money every month.
- Mobile check deposits: This feature will help you avoid going to an ATM or bank branch to deposit your check. Before opening a savings account, ask the bank if they allow mobile deposits. Although it's a rare feature, many banks are starting to apply it.
- Easy withdrawal: Although you may not be withdrawing frequently from your savings account, you may want to check if you will have quick and easy access to your money. Remember that the Federal regulations only allow a maximum of six withdrawals from your savings account a month.
Time to open your savings account
Although every bank and financial institutions have their own terms and conditions you should check before deciding, here are the steps you should take:
- Get prepared: The first thing you should do is organize your documents and keep them close. You will probably need your ID or passport, your Social Security Number and your driver's license.
- Applying methods: Check if you can apply online, by phone or in person. It will depend on the bank.
- Single or joint account: You can open your account on your own or with somebody else. If you are going for a joint one, then make sure you also have the holder's personal information.
- Define your amount: To open your account, many banks will require a minimum opening deposit. Even if your bank doesn't have a minimum deposit requirement, you should deposit your money soon so that you start earning interest as soon as possible. You can make the deposit by making a wire transfer, mailing a check to the institution or by providing a routing and account number from your bank account.
- Apply: Complete your application and submit it. You will then have to wait a few days until your account is approved.