Whether you're building up your emergency fund or saving for a specific big purchase, having a savings account provides a safe place to put your money where you can earn a small return in interest at the same time.
Both traditional and online-only banks often offer the option to open a savings account entirely online so that you can save a trip and physical paperwork as well as apply for and fund the account from the comfort of your home. This option can also give you more time to research different options and understand the terms of the accounts. Here's all you need to know about the process.
Understanding Savings Accounts
Unlike a checking account that you typically use to make daily purchases and often receive no interest on the balance, a savings account is designed for storing your cash with fewer withdrawals made. In exchange for keeping your cash at the bank, you get a small amount of interest along with the safekeeping of your money versus storing it somewhere around your house.
The standard type of savings account available through online and traditional banks allows you to deposit and access money freely. However, you can end up with fees for making certain types of withdrawals after the first six transactions in a billing cycle, and withdrawal and deposit methods will vary by type of bank.
Other types of accounts, such as certificates of deposit (CDs) and money market accounts, allow you to save money but have different features and requirements than standard savings accounts. For example, CDs usually have a minimum term during which you can't take money out unless you pay a penalty. On the other hand, money market accounts may require a much higher minimum balance but allow you to write checks.
Read More: Benefits of a Savings Account
Considering Online-Only vs Traditional Banks
When opening a savings account online, you get more options in terms of online-only banks and traditional banks with local branches. This means you'll need to consider what you find most important in the banking experience and weigh the pros and cons to find the best bank that meets your needs. You'll also want to look at reviews of the bank and maybe speak to a representative about any concerns or questions about their savings account options.
Keep in mind that while an online-only bank can offer a competitive interest rate and plenty of online banking features, you may have to wait days to transfer your money electronically without local access via an ATM or branch. If you need to talk to a banker, you'll probably rely on secure email, online chat or the phone. You may also find that online banks offer fewer account options if you decide you need a checking account or credit card, too.
On the other hand, traditional banks make it easy to deposit and withdraw cash via a teller and get help from a banking representative in person. You can also find a larger variety of services at traditional banks so that you're less likely to have to seek accounts elsewhere. However, at some institutions, you may find the interest earned on savings accounts too low, the fees too high and the online banking features lacking.
Assessing Your Savings Account Needs
Once you've found a few banks that look appealing and allow you to open a savings account online, you can decide between the savings account options available, as many banks have more than one.
Here are several things to look at when comparing savings accounts so that you can choose the best savings account and bank for your needs.
- Monthly Fees and Penalties: Savings accounts can come with a monthly maintenance fee that you have to pay unless you can waive it by having a set daily minimum balance, maintaining another account with the bank or meeting certain transfer rules. You can also run into other fees for making over six monthly withdrawals, needing to stop a payment, overdrafting your account or requesting paper statements. Your bank may also charge for inactivity.
- Daily balance requirements: Some savings accounts require you to have a certain average daily balance or you face fees. Consider how much money you plan to keep in your savings account. Then look for savings accounts online without a minimum account balance if you feel unsure or just want to avoid the hassle of potentially facing fees if your needs change.
- Interest rate: Generally, online-only banks and others offering high-yield savings accounts will offer the best interest rates and returns on your saved money. For example, the Federal Deposit Insurance Corporation lists a national interest rate of 0.06 percent annual percentage yield (APY) for savings accounts as of August 2020, but online banks like Chime and Ally can offer closer to 1 percent APY or more. On the other hand, you may have to give up the convenience of a local branch and quick access to your cash in exchange for the higher return. So, you'll want to research rates for the banks that interest you and weigh the pros and cons.
- Minimum deposit: You can often find savings accounts online without a minimum deposit requirement, and this can be convenient for opening an account you plan to fund later. Otherwise, check the bank's requirements so that you choose a savings account with a minimum deposit you can afford.
- FDIC insured: Find a bank that has FDIC insurance, as this will protect a maximum of $250,000 for each depositor in case the bank fails for some reason. The bank's website usually mentions if it's FDIC insured, and you can also check through the FDIC website.
- Savings account features: Consider your preferences for features like overdraft protection, online and mobile banking options and automatic savings programs. For example, if you prefer online banking, you may prefer a bank that lets you deposit checks electronically without a trip to a location or a need to mail it in. On the other hand, you may also prefer a bank that gives you an ATM card and has local branches so you can access and deposit money more easily.
Read More: How to Compare Bank Savings Interest Rates
Preparing for the Online Savings Account Application Process
After comparing banks and savings accounts, you're ready to decide on an account and move forward with applying. But before you head to your chosen bank's website or mobile app to open a bank account online, you'll need to gather some key information, and check that you don't have anything blocking the bank from accessing your credit file.
First, consider whether you plan to open the account alone or with someone else, since this impacts the information you'll need to gather. You'll need each account owner's legal name, contact details, Social Security number, date of birth and some form of identification. Often, you'll use driver's license or state ID numbers for identity verification, but banks accept some other forms of ID like passports too.
If your bank requires an initial deposit, you'll likely need the account and routing numbers for an existing bank account or a check, since you can't deposit cash virtually.
Second, you'll want to at least temporarily lift any freeze you've placed on your credit file since the bank will need to access this information for verification purposes. If you're not sure you have a freeze, check your credit reports through the bureaus Experian, TransUnion and Equifax. You can use their websites to temporarily or permanently remove the freeze, or you can do so by phone or mail.
Starting the Application Online
Once you've gathered everything you need, head to your bank's website or mobile app and find the option for the type of savings account you want to open. Usually, you'll see an "apply" or "get started" button that takes you directly to the application.
The bank may ask if you're an existing customer, and if so, have you log in to your account, as this can reduce the need to enter some information already connected to your account. Otherwise, you'll proceed as a new customer and often set up online banking credentials along the way.
The online banking application will ask whether you want a joint or individual account and will have you fill in the personal and identification information you've gathered for each account holder. Other details the bank usually requests include your employer name, past addresses (if you've moved within the last five years), any beneficiaries you want to add and your account preferences for things like overdraft protection and electronic bank statements. You may also be asked to set up a username and password for online banking as a new customer.
You'll be asked to read and electronically sign the bank's deposit account agreement and complete IRS Form W-9, Request for Taxpayer Identification Number and Certification for each account holder. This form requires your contact details and Social Security number so that the bank can send end-of-year tax documents for interest earned, as you'll need to pay any taxes due on that interest income.
Finishing the Online Savings Account Application
Once you've provided all the information needed to open your savings account online and completed any agreements and tax forms, the bank will usually ask you to fund your account with an initial deposit, but you may skip this step for accounts without such a requirement.
You'll usually be asked to enter banking account details such as the account type, routing number and account number along with the amount you want to transfer to your new account. Also, you may get the option to mail a check, upload an image of it electronically or use a debit or credit card.
After completing the application and providing any required initial funding, you can submit the application for the bank to review. Depending on the bank, you may get to start using your account right away through online banking, or you may need to wait up to a few business days for the account to get set up and for the bank to verify all your information. Active credit freezes or delinquencies with past banks could get your application denied, so contact the bank if you suspect these issues or get a denial notice.
Around one to two weeks after you get approved, you should receive a welcome package in the mail that will include documents explaining your new savings account and its terms. You may get other materials through your online banking portal as well.
Read More: How to Enroll in Online Banking
Using Your New Savings Account
Once you have the account set up, go ahead and enroll in your bank's online banking service if you haven't already, since that will provide a place to make transfers, see your balance, obtain electronic statements and possibly even deposit checks from the comfort of your home. You can also set up direct deposit through your employer to get your paychecks sent to the new savings account, or you could set up recurring deposits to build your savings.
How you can add and remove money from the account will depend on whether you've chosen an online-only or traditional bank. While a checking account would usually come with a debit card, not all savings accounts do, and this can create hassles when your bank only exists online. Instead, you'd likely use online transfers, electronic check images or paper checks for online-only banks. Banks with brick-and-mortar locations give you the option to deposit and withdraw cash in person alongside using the online transfer options.
Now that you've made your savings account online and learned to access it, consider checking with your bank to learn more about using their online and mobile banking tools. You can also write to clarify any concerns about your savings account's terms, fees or limitations.
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Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.