Savings accounts are a popular method of accumulating funds. In fact, around 68% of Americans reported having a standard savings account. While traditional savings accounts don’t pay much interest, high-yield ones do, and they can help you generate actual wealth.
Still, aside from their many pros, savings accounts have certain disadvantages that might make you ask, “Should I open a savings account?” The answer to this question ultimately depends on your financial goals and personal needs, and this article will help you reach your decision.
What Does a Savings Account Offer?
A savings account gives you the chance to accrue interest on your money over time. The amount of money you can earn this way depends on your account’s interest rate, the annual percentage yield (APY), your deposits, and the length of time the funds stay in your account.
Many savings accounts are insured against bank failure by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per account holder. You can find your bank’s insurance information on FDIC’s BankFind Suite search.
When it comes to withdrawal options, savings accounts offer one or more of the following:
- ATM withdrawals
- Transfers to another account to take cash out in person
- Wire transfers
However, it’s best to hold off on withdrawals to let your interest compound over time and earn more money.
Should You Have a Savings Account?
If your financial toolkit consists solely of a checking account, you may be overlooking a valuable asset—a savings account.
A savings account allows you to separate extra funds from your checking account and keep them safe. Plus, without a savings account, you may end up using the money in your checking account as a catch-all fund, increasing the risk of overspending.
With a savings account, you can save for specific goals and ensure that your money is directed towards its dedicated purpose at all times, reducing the risk of spending it on other items.
Finally, savings accounts help you save for emergency events like accidents, apartment repairs, and floods. If you’re still not convinced you need one, this is one of the best reasons for opening a savings account because disaster doesn’t wait for anyone.
When To Open a Savings Account
Opening a savings account sooner rather than later is the way to go. While savings accounts are available to adults of all ages, they’re most effective when opened early.
Starting earlier gives you more time to grow your savings before you actually need them. By the time you withdraw them, you’ll have more money in both accumulated funds and interest earned.
How To Open a Savings Account
Once you decide to open a savings account, take the following steps:
- File an application
- Enter your details
- Fund your account
File an Application
You can open a savings account at your chosen bank’s website or their brick-and-mortar location.
If your bank has a location near you, visiting it in person is the best way to ensure you don’t run into any issues. If your bank operates entirely online, check for an online filing option.
Enter Your Details
Your savings account application will require entering the following personal information:
- Name
- Date of birth
- Social Security number (SSN)
- Phone number
- Address
Fund Your Account
After you’ve entered your details, select your account type and transfer money into the account. You can do this through a direct deposit check (ask your banker for this), cash at an ATM, or your bank’s mobile app.
However, make sure to deposit enough money to exceed your minimum deposit requirement if your account has one. If it doesn’t, try to still contribute as much as possible because it can take years of payments to build a nest egg.
Questions To Ask When Opening a Savings Account
While opening your savings account, keep the following aspects in mind to ensure you’ve made the right account choice:
- What are you saving for?
- How do you want to access your account?
- What’s the APY?
- What are the opening deposit and minimum balance requirements?
- What are the account fees?
- Will your savings be safe?
What Are You Saving For?
If you know exactly what you’re putting money aside for in your savings account, you’ll be able to more easily determine whether the account functionalities match your needs.
For example, a savings account with a high but variable rate may not work for long-term savings. Similarly, a low-yield but long-term savings account won’t help you build a rainy day fund quickly.
Here are some savings goals you can choose from:
- Retirement—If you want to save money aside from your 401(k), a savings account with a stable rate will be the way to go
- Emergency fund—You should always have at least three to six months of expenses in the bank in case of an emergency. A high-yield savings account is the best option in this case
- Large expenses—Saving in advance for big purchases like buying a home, going on an expensive vacation, or swapping your car is less risky than taking out loans to cover these expenses. Savings accounts help you collect this money and make it difficult to spend what you save on unnecessary items
How Do You Want To Access Your Account?
Think about which mode of access makes the most sense to you, depending on your savings goals and how often you’d need to access your savings.
For example, an online bank may be the right choice for you if you’re comfortable making payments entirely online, want the highest APYs, and don’t mind that your savings account is with a different bank.
Meanwhile, a brick-and-mortar bank may be a better choice if you prefer the in-person banking experience and don’t mind getting a lower interest rate than at online banks.
What Is the APY?
Your account’s APY—which tells you how much you’ll earn by investing—is the most important aspect of your savings account, so make sure it’s at least above average. The average savings rate is 0.45% as of April 15, 2024.
High-yield savings accounts typically offer more than the average, but their APYs can go up or down.
What Are the Opening Deposit and Minimum Balance Requirements?
Many savings accounts require you to have a minimum opening balance requirement. This can be as low as $1 or as high as $5,000, with the latter typically reserved for accounts with high interest rates. Pay attention to this requirement to make sure you’re setting aside enough money when opening your account.
You should also check the minimum dollar amount you have to keep in your savings account to avoid monthly fees and earn your expected APY. This will help you make sure you can afford your chosen savings account.
What Are the Account Fees?
Most savings accounts—especially those with higher interest rates—come with unavoidable account fees, such as an excessive withdrawal fee at some banks, a monthly account maintenance fee, or a wire transfer fee for national and international transfers.
The good news is that you can minimize these fees by making sure you don’t make unnecessary withdrawals and maintaining your balance above the required amount.
Will Your Savings Be Safe?
When opening a savings account, people are mostly concerned with the financial aspect of the process. While APY, deposits, minimal balance requirements, and account fees are crucial, account security should be a priority. With the rise of financial scams through multiple channels, funds seem more vulnerable than ever.
In 2023 alone, consumers in the U.S. set a new record by losing over $10 billion to scams. As scammers continue to develop sophisticated techniques, shielding your cash reserves from fraud attempts has never been more important.
That’s where FortKnox comes in—the only security-focused savings account that allows you to simultaneously protect your funds and earn interest on your money.
