Why everyone should open a savings account

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Regardless of your financial goals, opening a savings account is a good idea. Opening an account with many banks also doesn't require a lot of money. In some cases, financial institutions allow you to open a savings account without depositing any funds.

Therefore, a savings account may be the right move for your financial situation.

Who should open a savings account?

If you're only using a checking account, you're missing an important component of your financial tool—a savings account.

For some good reasons, savings accounts allow you to keep your money separate from everyday expenses. Maybe you want to put down a down payment on your first home, set aside some money for your dream vacation, or build an emergency fund to help you deal with any financial problems life throws at you.

Without a clearly designated savings account, the money in your checking account can easily turn into a multipurpose fund that lets you spend more than you plan. But if the money is safely stored in your savings account, you might think twice about putting off other financial plans for impulse purchases, like a big dinner or a set of clothes.

When should you open a savings account?

The best time to open a savings account is as early as possible.

“Anyone from children to seniors can open a savings account, but starting these accounts early is most effective,” said Jim Pendergast, senior vice president of The Southern Bank Co. and general manager of AltLINE.

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Getting started early gives you more time to build up your savings before you need it.

Savings Account Benefits

The importance of opening a savings account cannot be underestimated. But what are the specific benefits of this choice? Here are the biggest benefits:

Great place to store emergency funds

An emergency fund is an important part of a healthy financial foundation. According to Scott Sturgeon, founder of CFP and Oread Wealth Partners, a savings account can act as an insurance policy against sudden large or unexpected expenses.

“For example, if you lose your job, spending six months in your savings account could mean missing out on your mortgage or rent payments, or living comfortably while you find a new job,” Sturgeon said.

Provide separate savings space for large expenses

Since you're saving for big expenses, it can be hard to stay motivated. It's all too easy to want to spend any remaining money in your checking account. A savings account can help.

“A savings account allows you to save for the big-ticket items you want to buy by putting those funds where it's harder for you to spend them,” Sturgeon said.

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Federal regulations used to limit withdrawals to six a month, limiting the chances of your savings goals getting derailed. While the restrictions have been lifted, many banks still limit the number of transfers a savings account holder can make.

Options for automated savings

A savings account is not just a separate place to keep cash, it also allows you to add funds automatically. Many savings accounts even allow you to set up automatic transfers of a portion of your regular paycheck.

“If you add funds to your account via direct deposit, you can contact your financial institution to put some of the funds into a savings account,” says Southern Bank's Pendergast.

For him, the beauty of this option is that “you don't miss out on money in your savings account, and you've got an automatic savings system in place”.

Safe way to save

The Federal Deposit Insurance Corporation protects you up to $250,000 in a savings account with an FDIC-insured bank. While you may not get the best returns, you have the security that comes with insured funds.

How much does it cost to open a savings account?

The good news is that you don't need a lot of money to open a savings account. Many financial institutions allow you to open a bank account without depositing money.

For example, Goldman Sachs savings accounts with Citibank and Marcus can be opened with no minimum deposit — but read the fine print. Some banks charge a fee unless a certain amount is deposited into the account within a certain period of time.

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Some banks also require higher deposits when opening an account. In general, the minimum deposit can be anywhere from $25 to $100. But again, you don't need to deposit cash to find a bank.

How to Open a Savings Account

Ready to open a savings account? Here's how to do it.

Start comparing your options on Bankrate. Once you've selected your bank account, it's time to collect your documents. To open a savings account, you will need the following information:

Social Security number
Date of birth
Address
ID, such as B. Driver's License
Contact information
Bank account information

After completing your application using the information in these documents, you will need to wait for the bank to consider your application. Setting up a new account shouldn't take too long, maybe just a few minutes.

Should I open a savings account online or in person?

You will find that most banks allow you to open a savings account online. You may come across banks that operate exclusively on the internet.

Whether you open a savings account online or in person depends on your personal preference. You can open a savings account without leaving the comfort of your home. If you have an online option, you can take advantage of better terms, such as higher interest rates.

However, if you prefer personal banking, brick-and-mortar banks may be your best option.

Which type of savings account is best for me?

If you're not sure which type of savings account is best, the answer probably boils down to what you want from a savings account.

If you're looking for the absolute best rate, you can opt for an online-only savings account, which tends to pay higher rates.

If you want to be able to discuss your savings account with a local banker, a traditional branch may be better for you.

If you want to use your savings immediately in an emergency, you may need to open a savings account if you already have a checking account.

As you explore your options, use Bankrate's savings account analysis to help you find the best on the market.

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