How to Open a Savings Account: Deposit Here
Saving money is something we all think about doing, but do not seem to spend enough time doing it. For those of you that have your lives together and this adulting thing is no sweat for you, this may not be the article for you. For the rest of you, me included, keep on reading to find out more about saving. The first step to saving is to open a savings account.
Your Guide to Opening a Savings Account
If you do not have a place to put the money, how can you save it? No, the shoebox under your bed does not count as a good savings account. You want to put it somewhere it can be safe and grow. If there is a fire at your house, all the cash is gone in seconds. It is time to put that money in a real account. Keep reading to find out how.
Start With The Basics: What Is A Savings Account?
I am making an assumption here that you do not have a savings account. I am also assuming that you do not know much about them. As such, I am going to give you some basic, but helpful information about savings accounts. Trust me, you want to start here. A savings account is a safe place to put your money. Yes, folks, there you have it. That is really all there is to it. You put money in a savings account that you want to save and not spend on a regular basis.
A savings account provides a safe place for your money. It is only available to you and it can gain interest. Most savings accounts are federally insured up to $250,000. That means if something crazy happened to the bank, up to $250,000 of your money is protected. See, it is already a much better idea to put your money in a savings account instead of that box under your bed. Unfortunately, part of being an adult is learning how to be better with money. So, really it is time to open a savings account.
Should I Open An Account Online?
Now, that we all agree that is it a good idea to open a savings account, how do you do it? Personally, online is the way to go. You can handle everything you need from the comfort of your own home, or coffee shop, whichever you prefer. Basically, every bank today has a website and most of them offer online banking.
How to Choose a Perfect Bank?
You should have a clear understanding of your needs from a savings account and bank. This can help guide you when deciding which bank to choose. Most often, when you choose online banking, you need to have a checking account at the same bank or have an account linked to your savings account. This allows you to transfer money electronically from one account to another.
You may choose a bank that has an actual building so that you can go to the bank to handle any business. Some banks offer online banking or in-person banking. Many banks are encouraging their customers to bank in an online environment and then may charge you to use a teller. Before you choose a bank you should understand how it operates so you are not surprised by any fees or limitations.
Below you can take a look at some of our top choices when it comes to savings accounts:
What Should I Look For In A Savings Account?
Before you open a savings account at any bank, you really need to understand what they can offer you.
Find a Bank that Suits Your Business Needs
Obviously, since this is a savings account, you want one that offers you high interest. You also want to make sure that the bank you select allows you to handle business in the manner you wish. If you want a bank that allows you to go in and interact with a teller, make sure the bank you choose offers that.
Perks of Online Banks
However, if that does not matter to you, you might want to find one that is online only. Online-only banks do not have the additional expense of bank branches and tend to offer a higher interest rate. The average interest rate for a savings account is about 0.09 percent. You may be able to find a bank that offers you over 2 percent.
Up to Date Bank
You want a bank that has an easy to use interface and offers up to date technology. You should look for a bank that has a mobile banking site, so you can use your smartphone to handle your banking needs.
Easy Access to ATMs
Make sure the bank you choose allows you access to ATMs that are within a reasonable distance from you. Even though you do not plan to take out your money, you want to be able to access it quickly, if you need it.
Know Your Bank’s Fees
Make sure you understand the bank's fee structure. There is nothing worse than being hit with constant fees.
What Is A CD?
While you are considering what is the best way to open a savings account, there are some other options you might want to consider. A certificate of deposit (CD) allows you to deposit a set amount of money into an account for a specific time. You cannot take your money out of this type of account before the time elapses, or you are hit with serious penalties.
You can commit to leaving your money in the account for just a few months, or up to five years. The longer you leave your money in the account, the higher your interest rate is. When you use a CD properly, it is a great way to save money. You know that the money is there and growing but you cannot touch it.
Is A CD Smarter Than A Savings Account?
I would not say that a CD is smarter than deciding to open a savings account. They each have their own advantages. I have highlighted some of the advantages of a savings account, so I will highlight some things about CDs, also.
Perks of CDs
Just like with a savings account, the money in a CD is federally insured up to $250,000. As long as you do not invest more than $250,000, you cannot lose your principle. This makes both savings accounts and CDs safer than stocks and bonds.
Higher Interest Rates
CDs usually have a higher interest rate than you can find with a savings account. They are usually higher than money market accounts, also. As with savings accounts, if you choose a CD with an online-only bank, you most likely will get a higher interest rate. You do want to pay attention to how the bank compounds interest. A bank that compounds the interest daily has a higher payout amount than a bank that compounds the interest on a less frequent basis.
There are fixed-rate and variable rate CDs. A fixed-rate CD means your interest rate is locked in at a certain percent for the life of the CD. A variable interest rate CD means the rate can go up or down based on the market. Many CDs have no or low fees, so be sure to look for one of those.
What Do I Really Need To Know About A CD?
The Length of a CD Term
One of the major differences that may make a difference between deciding to open a savings account or a CD is the length of the CD term. When you put your money into a CD, you are making a promise to the bank that you will keep it there. You agree to a set term, which could be as short as three months, but could be as long as five years.
That term is how long you are promising to let the bank hold on to your money. You can take it out sooner but you have penalties if you do and most likely you will lose money by taking it out early. If you are sure that you will not need to touch that money, a CD might be a better option for you. If you are not sure, you might want to keep your money in a savings account because you need the flexibility.
If you are interested in a CD, you should pay attention to the market. If you think the rates are going to increase quickly, you might want to get a variable rate CD for a short term and cash out when the rates go up but before they come back down. You are definitely taking a chance by doing this, but if you are sure of the rates, you might want to go for it.
Know What the Minimum Deposit and Fees Are
Some CDs have a minimum deposit amount and you should be aware of them. Some are zero dollars, while others are a few thousand. You want to make sure that the CD you choose fits into your savings budget. Remember how I mentioned that there are fees for early withdrawal? You want to know what those are, just in case.
While you may not be planning on removing your money early, emergencies can crop up. You need to know how much it is going to cost you to get your money if you need it. Also, there could be a better investment opportunity for you. You might want to cash out your CD and put that money somewhere else. You need to know what fees there are so you can make an informed decision.
What Does It Mean To Manage Money?
If you are new to the world of savings, you may not have a large arsenal of financial management tools. That is ok. That is why you reading this article; so that you can learn more. You are probably wondering what is money management? And do I need to have money to manage it? Since this is an article about the basics of savings, it is probably fair to assume you do not have much money saved. That is ok, too.
Money management means that you have a solid understanding of the money you have, the income you earn, the expenses you pay, and how much you are saving. That may seem like a lot, especially if you do not have a good understanding of it. Do not fear, it will all become clear to you.
Start Tracking Your Money
You must begin to track and budget your money. I know those are adult-sized words and many of us do not like thinking about budgets, but it is a thing we should do. If you do not have an understanding of these things when it comes to your money, then your money may be controlling you. That is not a good place to be.
In addition to learning how to open a savings account, I am going to explain some basic budgeting and saving tips. It may feel a little uncomfortable at first, but once you get that hang of it, you may find you actually like it. I am going to talk more in-depth about budgeting a little later, but to give you a preview, you should begin to understand how and where you are spending your money. That is key to getting control of your money.
What If I Do Not Have Any Money?
I am sure you have heard the saying that it takes money to make money. While there is truth to that, it is also true that if you cut spending, you can save more money. If you save more money and open a savings account, you can also watch it grow. I understand that you may not have a lot of money right now and you feel like you are barely getting by. Even so, you still need a plan to save money and spend wisely. No matter how little it seems you have, you should make every effort to save money.
Deposit Money Directly into Savings Account
One tip to doing this easily is to have money deposited directly into your savings account with every paycheck. The money automatically goes to your savings account without you touching it at all. It never shows up in your checking account so you can act like it is not even there. Then you spend only the money in your checking account. I know it is hard, at first, but it is worth it. Once you see your money grow, you begin to see it is worth whatever sacrifices you need to make.
Pay Your Bills and Debt on Time
Another tip to properly managing your money is by paying off your debt and paying all of your bills on time. I know that life happens and there are sometimes things out of your control that causes bills to slip. You may even have the money to pay the bill, but you were distracted and forgot to pay the bill. Perhaps you were using a debit card to automatically pay the bill and it expired and you did not realize it.
There are so many things that can prevent you from paying your bills timely. You must stay on top of them. Set reminders in your calendar, if you have to. If you can pay your bills on time, it is really helpful to you in the long term. It obviously gets your bills paid, but it also protects your credit. It prevents you from getting collections calls, which no one wants. There is also a satisfaction that goes along with making sure all of your bills are paid.
Are Credit Cards Bad?
In general, credit cards are not bad. It is all in how you use them. To be clear, credit cards really are not intended to be part of your savings plan. However, if used properly and in a smart way, you could potentially use them to aid your savings. You can consider that when you open a savings account. It really is not secret that credit cards can give you freedom and flexibility to buy things for which you may not have the money. When used properly, they help build a positive credit history and improve your credit score. They can also help you with your savings plan.
Think about this for a moment. Say you want to make a large purchase, furniture maybe. You have saved up the money to pay for it, but you also have a zero percent interest credit card. You could purchase the furniture with a credit card while leaving the money in your savings account. You can then make regular payments on the credit card, maybe in four payments.
This lets you keep the money in the savings account for a few more months to gain interest. You pay off the credit card in a reasonable amount of time and earn a little more interest. When used properly, credit cards are a great savings tool. Unfortunately, many of us do not have the control to use credit cards in this manner.
Does My Net Worth Matter?
I would not say it matters in who you are as a person, but it is helpful information for you to know. When you want to open a savings account, it is a good idea to know your net worth so then you can monitor its growth. In basic terms, your net worth is all of your assets combined minus what you owe to others. It is fairly easy to determine, especially if you do not have much to add up.
The fastest way to do this is add up the value of cars, houses, investments, money in all bank accounts and anything else of monetary value. From that number, you subtract all the money you owe on houses, cars, credit card, loans, and any other money you owe. The dollar amount that is left is your net worth. It may not be as high as you want it to be, but that is what you are working towards. Saving money and paying off your debt is a great way to increase your net worth.
Do I Really Need A Budget?
Yes, hopefully, I got this point across earlier. It is great that you want to open a savings account, but that is only a piece of it. It does not matter what your financial goals are, you must start with a budget. There is really no way for you to know how much you can save, if you do not know how much money you have. You also need to know how much money you are spending. You must take control of your money and your spending.
There are some things you cannot control, like how much money you earn per paycheck. You can control how you spend and save. I keep saying it because I want you to understand. It may take some sacrifices on your part, but it is possible.
There are many free budgeting apps and information available to you. They are simple and easy to use with forms and predefined sections for you to fill in the appropriate information. This makes it easy to see how much money you are spending and in which areas of your life. The easiest way to start is list your income in one column and list all of your expenses in a separate column. Add up all of your expenses and then subtract them from your income. That is how much money you have left every month. It may not be a pretty number but that is what you have.
How Do I Save?
It makes sense to me that if you want to open a savings account, you are interested in saving money. The budget you created above gives you a good picture of your current situation. Just because it is your current situation does not mean it has to be a permanent one.
So, let us have a difficult conversation about cutting spending so you have some money with which to open a savings account. Take a look at all of those expenses and let us look for places to cut spending. I will be honest, some ways are much easier than others. How about we start with the easy stuff?
Stop with the Unnecessary Memberships
I am going to go out on a limb and guess you have a gym membership you are not using. If I am right, cancel it, right now. Do not delay. If you are not using it, it has no value to you at all. You are currently wasting that money. You could put it in your brand new savings account. You will feel much better when you stop paying for it. Look at your expenses critically for other items you pay for but do not use. It is time to cut them off. If you are not using them, get rid of them. Now is the time to take these steps for you.
Stop Eating out
The next item you should take a hard look at is eating out. I mean all types of eating out, not just lunch and dinner. You should consider coffee runs and snacks. If you can cut down all instances of eating to half of what you are doing now, you will be surprised at the amount you will save. The savings you see may prompt you to reduce your eating out even more. If you prepare food to take for lunch and drinking coffee at home, you can save hundreds of dollars.
Stop Spending Money on Expensive Habits
Now it gets a little harder because we start talking about your habits. Do you have an expensive habit that you have considered quitting several times, but you just have not? Perhaps it is smoking or online betting or some other type of shopping. Now is the time to at least limit the amount of time and money you spend on that habit.
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Conclusion
So, I have talked a lot about how and why to open a savings account. There are many options available to you, which is great on so many levels. That means you do not have to settle for any type of account at any bank. You can do some research and find the best bank for you before you open a savings account.
However, I would also caution you that you do your research and really understand the bank before you jump in. In addition, create that budget. If you are serious about saving money, you need to start with your own budget. You need to understand the money you have coming in and the money you have going out. Only then can you take control of your spending and your savings.