A savings account is a safe place for people to put their money, especially to meet short-term or long-term financial goals. These accounts are typically offered by banks and credit unions, though they can also be offered by brokers. In this article, we take a look at how savings accounts work, how to open a savings account, and the types of savings accounts that are available.
How do savings accounts work?
A savings account is simply an account where users can easily deposit funds and earn interest over time. While they typically only pay a modest interest rate, they are considered reliable and safe, making it a good option for people to push cash in. Savings accounts are generally provided by financial institutions such as credit unions, banks and brokerage firms, such as Saxo’s regular savings plan.
The interest rate of savings accounts tends to vary, with banks and credit unions having the ability to change these rates at any time. Generally speaking, the more competitive the interest rate is, the more likely it is to fluctuate.
Some savings accounts require a minimum balance for users who want to avoid monthly fees, while others do not have any balance requirement. As always, be sure to do thorough research before opening a savings account to avoid any unexpected fees.
How to open a savings account?
Right now, it is easier than ever to open a savings account. To get started one must first submit an application to a financial institution, such as a bank, credit union, or brokerage firm. This can be done in-person, via phone, mail, or online.
Consider your options
Before opening a savings account, an investor must ask whether or not they have chosen the right financial institution that will suit their needs. Key features they may consider when making their choice include whether the savings account has low or no minimum balance requirements, low or no monthly fees, the interest provided by the account, and more. As always, investors need to do thorough research before committing themselves, as each financial institution will provide different features and offers for their savings accounts.
Provide required documentation
In order to open a savings account, investors must provide some information about themselves, and other required documents requested by the financial institution. Common documents needed include:
- A proof of identification, such as a passport, a government-issued identity card or driver’s license.
- Social security number
- Date of birth
- Proof of address, such as a utility bill
- Contact information, such as an email address and phone number
- Bank account information to help fund the savings account
Pick a single or joint account
Another thing investors need to decide is whether or not they want to apply for an individual savings account or a joint savings account. Much as its name suggests, a joint savings account is an account that is owned by more than one person, such as with a child or a spouse. If an investor is planning on opening a joint account, they will also have to provide the required documentation for anyone else whose name will be on the account.
Fund your account
Some savings accounts require investors to make an initial minimum deposit when starting up. Generally speaking, only brick-and-mortar banks accept cash deposits, while online savings accounts let investors transfer or deposit funds via a linked bank account. Deposits can also be funded via check.
Once an account has been funded, investors should also consider whether to set up a direct deposit to schedule automatic transfers from their checking to their savings account. This will help their balance gradually grow over time without needing much monitoring or conscious effort on their part.
Accepts terms and conditions
This is where the bank will ask investors to confirm whether or not they have read the disclosure documents. This document will describe the account’s liabilities, fees, and how the interest is calculated. This is the chance for investors to double-check before committing themselves to opening a savings account. Always make sure to read the fine print before signing the contract and accepting the terms and conditions.
Submit application
Afterwards, an investor can submit their application with all the required information to the financial institution of their choosing. While they may get acknowledgement within a few minutes if they complete the application online, it can actually take the establishment between two to five business days to verify their information, open an account and grant them access.
Types of Savings Accounts
Financial institutions typically offer a few different types of savings accounts. Here are some popular ones below:
Standard savings accounts
Standard savings accounts are available at most credit unions and banks. However, these basic accounts do not usually offer very high-interest rates.
Money market accounts
Money market accounts combine the best features of checking and savings accounts. Users can deposit funds into a money market account at any time. They can also withdraw it using a check, electronic transfer, or debit card. These accounts tend to be convenient for people who want instant access to their funds.
Interest rates of money market accounts tend to be better than standard savings accounts. However, the particular institution may still limit the number of transactions that people can make per month without penalty. Higher minimum deposits may also apply this this type of account.
High-yield savings accounts
High-yield savings accounts are also often offered by credit unions and online banks. That said, some can also be found in retail institutions. High-yield accounts come with more attractive annual percentage yields than standard savings accounts.
Specialty savings accounts
These specific accounts are designed for a specific type of person or for a specific savings objective. For instance, children’s and student’s savings accounts are designed to teach kids and students the importance of saving money. Usually, interest rate or specialty savings accounts are typically low when compared to high-yield savings accounts.
Some specialty savings accounts are designed for people to put money away for retirement, holidays, shopping and even healthcare. These accounts usually have low or no maintenance fees. That said, the bank may still restrict who can use these accounts and when they can withdraw funds.
Bottom line
Overall, savings accounts offer people one of the simplest ways to earn interest on the money they already have. They typically offer higher interest rates when compared to standard checking accounts, while also making it easy to transfer and withdraw funds. As such, investors should definitely consider opening a savings account to help with managing their finances.
