How To Open A Savings Account: A Safe Way To Earn Passive Income
Updated May 10, 2024 at 2:19 pm
Saving money is a key part of building healthy money habits. Savings accounts provide a safe place to hold your funds while accruing interest. There are a variety of savings accounts to choose from and some of the best have annual percentage yields (APYs) of up to five percent or higher. Keep reading to learn how to open a savings account and start earning a passive income with minimal risk.
How To Open a Savings Account
Step 1: Choose Your Financial Institution
There are several types of financial institutions to choose from to save your money. Some of the factors that may influence your choice may be the interest rate connected to the account, technology or brick-and-mortar locations.
- Online only: Online-only banks typically provide customers with competitive APY savings rates and lower monthly fees than traditional banks.
- Traditional brick-and-mortar banks: Traditional banks like Chase provide both online and branch access. This may be an ideal approach if you want to visit a branch and speak with a representative when an issue comes up.
- Financial Technology Companies: Often referred to as fintech companies or neobanks, these institutions, like SoFi, can be federally insured banks or partner with FDIC-insured banks to offer competitive banking services with little overhead costs.
- Credit Unions: These are member-driven nonprofit organizations. Since they’re not-for-profit, savings accounts found at credit unions often have higher interest rates as well as competitive rates for loan products.
Step 2: Gather Your Documentation
Before opening your savings account you should gather the following documentation.
- Government-issued ID: This includes a driver’s license, state id or passport. If you’re living temporarily in the United States you may want to reach out to the bank to see if there are any additional pieces of documentation that you may need to bring with you.
- Social Security number: You may need to show your card or provide your Social Security number when setting up your account.
- Personal details: This may include information, such as your birthdate, place of birth or even your mother’s maiden name.
- Contact information: This will include your current address, phone number and email address.
- Checking account details: If you would like to have automatic withdrawals moving money from your checking account to your savings account you’ll need details on your checking account.
Step 3: Decide What Type of Savings Account You Would Like to Open
There are different types of savings accounts that savers can choose from depending on their savings goals and how accessible they would like their funds to be. Below are a few examples of accounts that customers may choose to open.
- Traditional savings accounts: This is the type of savings account that most people are familiar with. Customer’s funds are easily accessed and have the potential to earn interest.
- High-yield savings account: These accounts are more often than not found at banks with branch locations. These accounts are noteworthy because of the higher interest rates associated with this savings tool.
- Certificate of Deposit (CD): Opening a CD is a strategic way to earn interest on your funds and to keep from spending those funds. If the client has to withdraw their funds before the term has ended they will typically incur a penalty.
- Money Market Savings Account: A money market account typically has features similar to a savings and checking account. Not only do they earn higher interest rates than traditional savings accounts, but they also typically come with features that make it easy to access your account. This may include checks and debit cards.
Step 4: Choose a Joint or Individual Account
If you’re opening an account by yourself, you’ll choose an individual account. But if you want a savings account shared with someone like a spouse or child, you’ll choose a joint account.
Step 5: Submit Your Application
This is where you accept the terms and conditions of the account and finish submitting your application. Before submitting your request make sure to review the necessary documentation.
Step 6: Fund Your Account
Once you’ve submitted your application and it has been approved to open your account you will need to make an initial deposit. The amount of the deposit may vary depending on the type of account you’ve decided to open and initial deposit guidelines set by the institution.
How Do I Choose a Savings Account?
Before making your final decision it’s important to consider the following factors that may influence which type of financial institution will work for you.
How Much Interest?
One of the most important questions to ask when opening a savings account is how much interest does the account earn? The more interest you earn, the easier it is to save money.
APY refers to the amount of interest earned over the course of a year. For example, if you deposit $5,000 at the beginning of the year in an account earning 0.02 percent APY, you’ll earn an extra $1 in your account. But if you deposit $5,000 in an account earning 5 percent APY, you’ll earn $250 in interest over the course of a year.
Fees
You’ll have to watch out for fees when opening a savings account. Some banks may charge fees like monthly maintenance fees, overdraft fees and inactivity fees. Other banks offer no-fee savings accounts that won’t charge many of these fees. But you may still see certain fees like a wire transfer fee.
Additional Perks and Features
The best savings accounts come with features that make your life easy or help you save more money. In addition to high yields and no fees, banks might offer easy access with a debit card or features like recurring transfers so you can automatically save money on a regular basis.
Some banks may even offer new customers a chance to earn a bank account bonus. You’ll typically need to meet eligibility requirements, such as making a minimum deposit amount set by the bank. Some bonuses may require you to set up automatic deposits during a designated period.
Frequently Asked Questions
Are Savings Accounts Worth It?
A savings account gives you a safe place to hold your money while also providing easy access to those funds. You can use it to save for short- or long-term goals like buying a home, wedding or use it as an emergency fund. Plus, a savings account typically earns interest, giving you a chance to earn a passive income.
What Are Common Savings Account Fees?
Some common fees you might find with a savings account include:
- Monthly maintenance fees: Some banks charge this service fee to keep your account open. Others allow you to waive the fee or won’t charge maintenance fees.
- Wire transfer fees: If you need to electronically move funds from one account to another, you could get hit with domestic or international wire transfer fees.
- Inactivity fee: Some banks charge a fee if there is no activity for a certain period.
What Customer Service Resources Are There?
Things may come up with your savings account. Knowing how you can communicate with your financial institution is an important part of deciding if it’s the right place to open your savings account. How easy is it to reach the banking institution if there is a problem? Can you place a call, email, chat or SMS messaging?
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