- Financial planners say if you don’t have a savings account, don’t wait: Now is the right time to open one.
- Make sure your account is federally insured – typically savings accounts are insured up to $US250,000.
- Look out for interest rates and fees when opening a savings account for the first time.
Whether you are opening up a savings account for the first time or not sure if you chose the right bank to hold your money, there are important factors to look into.
We spoke to financial planners about the the right time to open a savings account and how to save according to your budget and income.
When should I open a savings account?
If you don’t have a savings account, now is the right time to open one: Don’t wait.
When you shop around for banks to open a savings account, there are a few things to look for. First, make sure the bank you select has account insurance, Kimberly Foss, a financial planner and the president and CEO at Empyrion Wealth Management, told Business Insider.
Typically, savings accounts are federally insured up to $US250,000. “It sounds really basic, but with many people opening accounts online instead of in physical locations, it pays to be sure that the institution in which you are depositing your money offers federal insurance,” Foss said. Look for “FDIC Insured” or “All deposits federally insured up to $US250,000” at the bank or online.
And whether you’re always on-the-go or work from home, look for a bank that offers a convenient way to check your balance. Whether that be mobile banking services, online withdrawals, a local location, or an ATM. Features like these will make your account more user-friendly and easier to maintain, Foss said.
Choosing between a traditional savings account vs. high-yield savings account
Look at the interests rates offered on a savings account. Right now rates are low and average 1-1.5%, meaning your money will earn interest just for being in your account.
High-yield accounts offer higher rates of interest than regular accounts and can have different requirements, like minimum balances or restrictions on deposit sizes, Foss said. But like regular savings accounts, high-yield accounts are typically federally insured up to $US250,000.
Look out for banks that charge extra fees
While there are an overwhelming amount of positives to opening a savings account, there are a few things to watch out for when choosing a bank.
Some banks may charge fees on a savings accounts as a whole – not to be confused with excessive withdrawal fees. “You should not be paying a bank to put money in an account,” Alan Moore, a financial planner and the cofounder of XY Planning Network, told Business Insider.
Carefully check any and all fees that come with opening an account. Federal regulations require charging fees for exceeding the maximum number of withdrawals from a savings account per month – know your account limit and how much it will cost you if you exceed it, Foss said.
One of the biggest traps banks set are “giveaways.” Many local community banks will offer a free lunch or gift card when opening a savings account, Moore said, but “just go with the best account for you, not necessarily the one that’s going to give you a free pizza when you sign up.”
How to start saving
Once you have an account, it’s time to start saving.
Make a budget and stick to it. A good budgeting tool is sticking to the 50-30-20 plan, meaning 50% of your income goes toward necessities like food and utilities, 30% goes to splurges, like an outing at your favourite bar, and 20% goes straight to your savings account.
Foss suggested the best way to show discipline is skipping one latte per week. Put that extra $US5 in your savings account and it adds up.
Separate your checking and savings. Consider setting up a savings account with a bank separate from your checking account, Moore suggests. That way you won’t be enticed to spend the money you are trying to save. And instead of calling it “savings” make it an emergency fund so you are less likely to dip into the account for non-essential purchases.
Set up automatic deposits to your savings account. This way you won’t miss the money you earned from your paycheck because it will automatically be deducted before the rest goes into your checking account.
Increase your income. If putting away money today is not possible – perhaps you’re paying off a lot of student loan debt – look for ways to increase your income, Moore said. When thinking about budgeting, the go-to thought is cutting expenses like dining out or taking vacations, Moore explains. “It kind of sucks to be told you can’t spend money on the things you really enjoy,” Moore said, “so I encourage folks to look at the other side of the equation and say, ‘How can I increase my income?'”
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