If you dream of owning a home or starting a family, or simply want the security of having funds in the case of an emergency, a savings account is crucial.
While a checking account can be used to cover necessities like rent, bills, and other transactions, it’s good practice to also have a savings account to save and plan for future expenses. Parsing out your finds across multiple accounts with different goals can help you to better organize your spending habits. It can also help with reaching financial goals more quickly by allowing you to track the balance toward specific goals within a particular account and work toward them over the course of months or years.
If you’re thinking of switching banks or opening a new savings account, you’ll need to gather a few items and weigh options at different banks or credit unions.
What do you need to open a bank account?
Gathering identification documents will be one of the first steps to opening a savings account. While it may feel like a hassle to get the paperwork in order to prove your identity, the background check is an essential service.
It’s carried out, in part, so that banks comply with guidelines and regulations like Know Your Customer (KYC) requirements, which aids anti-money-laundering efforts. But it also serves as a key protection for customers to help prevent bad actors from impersonating others and making an account or withdrawal that a person had no consent to.
- A government-issued ID, such as a driver’s license, passport, or state ID. While you may have a school or work ID handy, those won’t suffice at a bank.
- Social Security number or an individual taxpayer identification number. Whichever one you provide will depend on whether you’re currently residing in the U.S. or are a U.S. citizen.
- Proof of address. This can come in many forms including a utility bill, a lease agreement, a voter registration card, a motor vehicle registration, a paycheck, or a medical card.
- Date of birth. Providing a birth certificate can also serve as a valid form of ID.
- Bank account information. This is necessary to make an initial deposit. Two items from a checking account will be needed: your account number and routing number.
- Phone number and email for contact. Leave a form of contact that you want to check for updates on the account and information your bank is trying to alert you to, such as confirmation of a mobile deposit and the like.
7 things to consider when opening an account
If you’re considering opening a new account, it may be tempting to open an account where your family has theirs or do a cursory search and pick one of the first that you see. Instead, it may be beneficial to form a list with a few options and narrow it down. Leah Coleman, a certified financial planner at Orchard Financial Group, suggests starting a search by looking at the top high-yield savings banks, and reading about each.
“You might decide where you want to put your money by personal values. Maybe you really like the company and you like the bank and you feel happy having your money there,” Coleman says. “Or maybe you choose the bank because the fees are low and they have no minimums. And their user experience on their online portal looks really great.”
Whatever the reason, these are a few items to weigh before you settle on one option.
Annual percentage yield. Shown as a percentage, the APY is the interest earned on an account balance within a year, and its feature of compounding interest makes it different from simple interest.
That’s because it allows deposits to earn interest not just on the initial deposit, but on the amount it grows to. So, if you deposit $100 at a 1.5% APY, it will have grown to $103.02 at the end of the second year since the deposit was earning interest on the $101.50 it had become after the first year. Knowing this rate is important because it’ll help determine how quickly you rack up more money. It could fluctuate, though, so keep track of it beyond the moment you open an account.
Fees. It’s common for banks to charge various monthly or annual service fees, overdraft fees, or fees if the account dips below its minimum. So it’s important to do your research and look through a financial institution’s full list of fees (often referred to as a fee schedule) to better understand the costs for certain services. Financial educator at Texas A&M University Nick Kilmer says fees should be a top focus for many people. “If you have a lower deposit balance, like a college student would or many Americans, fees can easily offset any interest you would earn,” he says.
Deposit and withdrawal options. Easy access to your funds is another thing to keep in mind since there are limits on the number of withdrawals you can make from your account depending on the type of account you open. For example, if you withdraw excessively from a money market account, it could be converted into a checking account. Savings accounts typically have a limit of six withdrawals a month. During the early days of the pandemic when people needed easy access to savings without penalties, the Federal Reserve Board made a change to a regulation that limited withdrawals. Some banks still have penalties in place, so be sure to confirm what the rules are where you decide to open an account.
Extra perks. While many banks offer the same basic features, some may go beyond that and offer extra features. For example, many banks and credit unions offer digital tools, such as online check writing and mobile deposit.
Insurance. Unfortunately, banks and even credit unions can sometimes fail, so it’s important that your institution is backed by the FDIC or NCUA so that you can get your money back in case that happens. For banks, the FDIC insures up to $250,000 per depositor, per insured bank, for each account ownership category. For credit unions, the NCUA offers the same protection of $250,000 per share owner, per insured credit union, for each account ownership category.
ATM network. While digital banking helps avoid trips, there are some services you may prefer an ATM for, such as making transfers or getting cash. In that case, consider the ease of making a trip depending on the bank you choose. Wells Fargo boasts a 12,000-strong ATM network while Bank of America notes that its ATMs are all audio so that they are more accessible.
Other services. For some, it might be ideal to do everything all at one bank for a more streamlined approach. In that case, look at what the institution offers beyond opening a savings account and whether those products also appeal to you. If you want to improve your credit score, maybe the bank offers credit cards. Or perhaps you have other needs like a personal loan or mortgage products.
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