How to Open a Savings Account
Have funds to spare after pulling your monthly expenses out of your paycheck? Nice! It might be tempting to use that cash to upgrade your cell phone case or indulge in some takeout from the latest trending food cart, but consider learning how to open a savings account to truly make the most of that unspoken-for cash. Because savings accounts accrue interest, they enable your money to make even more money without you having to do anything. Now that's an excellent way to get paid.
Thanks to their high savings rates — typically better than you’ll find at a bank — credit union savings accounts allow you to grow your savings as fast as possible. Learn how savings accounts, particularly those available through your local credit union, can be the perfect way to steadily build your assets.
How to Open a Savings Account
Opening a savings account is a simple process. Follow these seven steps to get started.
1. Choose an Institution
First, you’ll need to decide where to open your savings account. This step is also the most important, as it determines a lot of other factors, like whether you can manage your money online, where to find accessible ATMs, and how much interest you can earn.
Your three main options when choosing an institution to house your savings account are:
- A traditional commercial bank.
- An online-only financial institution.
- Your local credit union.
Keeping in mind that credit unions generally have more favorable perks, such as higher interest rates, better customer service, and lower fees (or no fees at all!), you’ll want to compare and contrast how your different banking options handle these factors:
- APY (annual percentage yield). How does interest work on a savings account? An APY is how much you earn in interest after one year — a higher APY means you get more money.
- Minimum balance requirements. One way for financial institutions to make money is by using a minimum balance requirement. If you don’t have a certain amount in your account at all times, they might charge an extra fee. Look for an institution with low or no minimum balance requirements.
- Fees. Commercial banks typically charge fees such as service charges, ATM fees, or minimum balance fees. Most credit unions, however, do not. Look for an account with low or no fees.
- Access to branches/ATMs. The more branches and ATMs, the more convenient you’ll find it to withdraw cash or handle other banking business, such as setting up direct deposit. As you look around your neighborhood, note that many credit union savings accounts are part of a larger group of affiliated credit unions that provide fee-free ATM access through a shared network.
- Online/mobile banking. Don’t love talking to representatives in person or on the phone? Look into online and mobile banking opportunities, such as an institution's website or app. You’ll want to know how easy it is to use for functions like setting up automatic payments.
- FDIC/NCUA insured. Always make sure your institution is insured: FDIC for commercial banks and NCUA for credit unions. If something happens to your institution, your money will still be safe.
2. Choose the Right Savings Account for Your Needs
We use the term “savings account” broadly, but really there are many different types. You want to pick the best one for you based on factors such as how often you’ll need to withdraw money or whether you can meet the minimum account deposit.
A deposit savings account, also known as a traditional or regular account, is the standard and usually a safe bet. If you want your savings account to make money faster, you can choose a high-yield savings account for more interest, but these generally come with more restrictions, such as a penalty for withdrawing too much money at once.
Have an intended purchase in mind for the savings? There are several types of savings accounts dedicated to short- and long-term goals. For example, college savings accounts accumulate money toward education expenses, while club accounts — also called vacation or holiday accounts — can help fund that once-in-a-lifetime trip. In addition, rewards savings accounts offer special incentives that vary by the financial institution.
If you’re OK with not touching your money for a while, you can also invest it. Certificates of deposits (CDs), 401(k)s, and IRA accounts are great long-term strategies for making more money off your savings. Be careful, though, because these often have severe penalties if you want to withdraw your money prematurely.
Finally, if you already have a few thousand dollars in savings, you might qualify for a money market account. These typically require more money for the initial deposit but allow more privileges, such as debit cards and check-writing, while still accruing interest.
3. Collect the Required Documents
Financial institutions will run a formal application process to open a savings account. Whether opening a credit union savings account or another type, you’ll need to verify your identity by providing the following information and documents:
- Social Security number (SSN). Every American citizen and permanent resident has a SSN, used for tax and identification purposes.
- Identification. A state-issued identification document, such as a driver’s license or passport.
- Date of birth. Your birthday is another form of verification that you are who you say you are.
- Address. Financial institutions use your home address for billing and to verify purchases, not to mention a place to send important documents like your debit card or statements.
- Contact info. You’ll be asked for your phone number and email address so the institution can reach you when necessary.
- Bank or credit union account info. If you’re transferring your savings from another account into a new one, you’ll need to provide your old account information for the transfer to run smoothly.
4. Determine if You're Opening a Single or Joint Account
Single accounts are only accessible to one person, while joint accounts are accessible to two or more people. Typically, joint accounts are for households where finances are shared, and more than one person needs access to the account.
It’s fairly common for people to open single and joint accounts simultaneously if they desire to keep some savings separate. For example, some will opt to open a separate single account for their own savings and split their money between the single account and a joint account used for communal purchases, like rent and bills.
5. Review Terms and Conditions
An institution’s terms and conditions are the “fine print” in opening a savings account. They outline all the policies, features, and data relevant to your savings account — including interest rates, reward points, and account restrictions. Every institution has different terms and conditions.
Keep in mind that the terms and conditions are legally binding, so don’t just gloss over them. The legal language can be confusing, but it’s always best to know what you’re committing to so you can avoid surprises later.\
6. Submit Your Application
Different types of financial institutions have various means for submitting your application. Online banks, for example, often use digital uploads of your required documents. Alternatively, many commercial banks and credit unions offer both in-person meetings and online applications to open new accounts.
No matter the application process, it helps gather all your necessary documents and information beforehand. Review our list from Step 3, as well as any other requirements your chosen institution requests, such as proof of address or a payment stub.
7. Fund Your Account
The phrase "fund your account" is just a fancy way of saying putting money into your savings account. This is also known as making a deposit. If you are opening your first savings account, you may not have much at first; you’ll likely fund it as you go with a little from each paycheck.
Many credit union savings accounts require no minimum balance or deposit to start. If it’s not your first savings account, you can transfer your money from another account into your new account, even a checking account from the same institution.
Next comes the fun part: Watching your savings grow!
Further Resources on How to Open a Savings Account
Want to know more about how to open a savings account and fill it with as much savings as possible? Check out these resources:
- Make the most of your savings account. Learn how to manage your savings account well with these tips from credit.org.
- Save more effectively. The National Foundation for Credit Counseling offers advice on improving your overall savings habits.
- Get creative with your savings. Here are more than 50 ways to save, thanks to advice from America Saves.
Is It Worth Saving at a Credit Union?
So, how does a savings account work at a credit union? The same as with banks, except you keep more of your money! Because credit unions are not-for-profit, they generally have fewer fees and higher interest rates than other banks, not to mention friendlier customer service. Use our Credit Union Locator tool to find a credit union near you to open your credit union savings account today.