If you want to set money aside and watch it grow over time, you might consider placing it in a savings account. Savings accounts are primarily used to achieve long-term financial goals, such as saving for a home, putting children through college, or preparing for retirement.
Whatever your financial goals, keep reading to learn everything you need to know about savings accounts — including how to choose and open one, the pros and cons of having one, and some of the best options!
Simply put, a savings account is a financial product in which you deposit money and typically earn interest on the balance. Savings accounts can be found at both banks and credit unions.
Unlike a checking account, which is often used for everyday transactions, a savings account is designed for funds that you don’t plan to spend right away. With that said, there is still some level of liquidity with many savings accounts. Many banks allow up to six withdrawals per statement period.
CIT Bank is an online-only financial institution and a division of First-Citizens Bank & Trust Company that offers various personal and commercial banking products. After funding a Savings Connect account, users earn the account’s top interest rate, which is 12x the national average. What’s more, there are no setup fees, monthly service fees, or minimum balance requirements. All account activity and transactions can be managed via the CIT Bank mobile app.
Minimum Opening Deposit: $100
Minimum Balance Requirement: $0
Upgrade is a financial technology company that offers a wide range of financial products — including personal loans, cashback credit cards, rewards checking accounts, and savings accounts. Today, the company has more than two million customers, and their Premier Savings account is currently available in all 50 states and Washington D.C.
With a Premier Savings account, users earn a high APY on balances over $1,000. What’s more, there are no monthly account fees, transfer fees, deposit requirements, or balance requirements. Upgrade also has a top-rated mobile app that allows you to manage your account, view balances and transactions, and receive alerts.
Minimum Opening Deposit: $0
Minimum Balance Requirement: $0, but $1,000 to earn top APY
Not all savings accounts are the same. In fact, there are all kinds of savings accounts — from high-yield savings accounts to specialty savings accounts— that are designed for various purposes.
The three main types of savings accounts, however, are traditional savings accounts, money market accounts, and certificates of deposit (CD).
The traditional savings account (or deposit savings account) is the account most people are familiar with. Most traditional savings accounts have low minimum deposit amounts and modest interest rates.
The money market account is like a traditional savings account in that you can make deposits and withdraw money occasionally. Money market accounts differ, however, in that they may require larger opening deposits and have higher minimum balance thresholds. At the same time, they are more likely to have higher interest rates.
The certificate of deposit is different in that it doesn’t have nearly the same liquidity as either a traditional savings account or money market account. When you purchase a CD, you agree to a maturation period. Once the maturation period ends, you will receive your money plus interest. The longer your term, the higher your interest rate is likely to be.
Once you have found a savings account you like, follow these five simple steps to open your account:
Determine how you will apply: Many banks allow you to apply
online, over the phone, or in person.
Fill out the application: In addition to personal and contact information, you will need to select whether you need a single or joint savings account. Make sure you have identification on hand.
Read and accept the terms and conditions: It’s important to comb through this documentation and confirm that you are getting the product you want.
Submit the application: If applying online, you may hear from the bank within minutes. Otherwise, allow for up to five business days.
Make your opening deposit: Satisfy the bank’s minimum deposit requirement and you’ll be able to start using your account!
When shopping around for a savings account, there are several factors you should compare:
Annual yield percentage (APY): The higher the interest rate, the faster your money is likely to grow.
Minimum opening deposit: Some accounts don’t have opening deposit requirements, while others require deposits of up to $100 or more.
Minimum balance requirements: If you suspect that you may need to withdraw money from savings at some point, make sure that you’ll be able to stay above the account’s minimum balance threshold.
Monthly service fees: Some savings accounts charge service fees, and in many cases, these fees may cost more than the interest you are earning on your account balance.
Withdrawal limits: Per Regulation D, banks may allow up to six withdrawals on savings accounts per statement period.
Requirements for Opening a Savings Account
While requirements may vary one financial institution to the next, here are a few items you will likely need to provide:
If you are using another bank account to find your opening deposit, you will also need their routing and account numbers.
While savings accounts have their advantages, they are not always the right option. It’s wise to consider all of the pros and cons of savings accounts before opening one:
Whether or not you should have multiple savings accounts depends on you and your financial goals. You may prefer to keep all of your funds in one place, or you may want to have money in savings, emergency, and other accounts.
The best savings account for one person isn’t necessarily the best savings account for another person, as much of this depends on the person and their financial goals.
Interest rates not only vary from bank to bank but also product to product. What’s more, banks may change their annual percentage yield (APY). When choosing a new savings account, be sure to compare multiple options to find the best interest rate for you.
Because online banks don’t have physical locations, they typically have fewer overhead expenses. This allows them to offer higher interest rates to savers, as well as charge fewer fees.
Typically, any interest you earn on your savings account balance is taxable. You will need to submit a 1099-INT form with your tax return, regardless of how much you earned.