How to Start a Savings Account
What you need to know about savings accounts and how to start one
Saving money isn’t always easy, especially if you’re just starting out. So it can be helpful to know the basics before jumping in. How much should you save? What kind of savings account should you open? How can you keep an eye on your money? Don’t worry. While you may have a lot of questions about savings accounts, the answers are simpler than you think.
What is a savings account?
The definition of a savings account is a type of bank account that allows you to safely keep your money with a bank and potentially even earn interest. Interest is a payment that the bank gives you in exchange for letting them use the funds in your account—and it’s typically calculated as a percentage of your account balance. The more you save, the more money you’ll earn in interest each month. (How’s that for motivation?)
How does a savings account work?
Now that you've answered the question, "what is a savings account?" you may be wondering, “how do savings accounts work?” It’s pretty simple: The bank can use the money in your savings account to lend to other customers, charging them interest. This is how they make their money and give people opportunities to do great things like own a home or start a business. In return for letting them use your money, they’ll typically compensate you with interest.
It’s also worth noting that minimum balances for savings accounts aren’t unusual. Accounts with little to no minimum balance requirements usually come with a low interest rate—whereas an account with a higher minimum will likely come with a higher interest rate.1
So, how much does a savings account cost? It depends. Some banks charge fees, some don’t. Fees can range. That’s why if you’re thinking about opening a savings account, it pays to do your research to make sure you’re getting an account that meets your needs.1
Advantages of a Savings Account
One of the advantages of a savings account is they generally come with higher interest rates than checking accounts. This is because, unlike checking accounts which tend to be used for everyday expenses, the bank usually counts on you to keep your money in a savings account. This allows them to use your money for loans—which they, in turn, reward you with interest.
Another advantage of a savings account is that many banks that offer them are insured by the Federal Deposit Insurance Corporation (FDIC), who can cover your savings account up to a set amount. This means that, if the bank fails, the FDIC will return your money to you, giving you more financial peace of mind.2 Although there are some very strong advantages to starting a savings account, there are also a handful of disadvantages. The disadvantages of a savings account include transaction limitations, withdrawal limits and even deposit limitations.
Savings Account Withdrawal Limits
If you’re thinking of opening a savings account, it’s important to note that they’re not ideal for everyday purchases—there are limits on withdrawals from savings accounts. Regulation D, the Federal Reserve Board’s rule, typically limits these accounts to six “convenient” withdrawals/transactions per month.
These withdrawals/transactions include withdrawals or transfers made via phone, fax, or through online or mobile banking.3 This rule doesn’t apply to withdrawals or transfers at ATMs, withdrawals done via phone if the check’s mailed to the depositor, and in-person transactions done at the bank. However, some banks may have their own rules in addition to Regulation D, so it’s important to do your research.4
If you go over this limit, you may be charged a fee, have your account closed, or have your account converted to a checking account—again, it depends on your bank.4
How do you set up a savings account?
It’s simple to open a savings account online. To get a savings account set up, you’ll just need to choose a bank, provide personal information like your Social Security number and mailing address, and add money to your account. More on that below.
Choose a reputable bank that has the terms, conditions and fees you feel comfortable with. When you’re ready to get started, look for a tab or link that mentions “savings account” or “opening an account.”
Be sure to have the following things on hand to fill out your information before you’re prompted to deposit funds into your account:
- Valid, government-issued photo ID (like a driver’s license)
- Personal information (like your Social Security number and date of birth)
- Contact information (like an email address and mailing address)
Once complete, you should be ready to start adding money to your new savings account. In most cases, you’ll be able to do so using a debit card or with an account and routing number.5
Not quite ready to put money in your new account? Don’t let that stop you. Many banks don’t require a minimum amount to open an account, so you can wait to make that first deposit. If you’d rather open a savings account in person, you can always visit a bank branch. If you’re under 18, you’ll probably need to go in person with your parent or legal guardian.6
How can you start saving money?
Starting to save money can be a very difficult task. In the interest of saving money, some people choose to give up their gym memberships and challenge a friend to run with them every morning instead. Or, they drop cable and binge-watch shows on a more affordable streaming service. Even a small change in routine could be the key to saving money—but there is no single method of savings that works for everyone.
Some people find it helpful to shift their mindset about saving money. Don’t think of it as something to do if you happen to have cash left over. Instead, look at savings as paying yourself first. This means each pay period, before you’re tempted to spend money, put some in a savings account for future needs.7
Another way to stay on track is to set up automatic payments deducted from your paycheck or your checking account into your savings. Before you know it, you’ll be on the path to having the money you need for important milestones: a down payment on a home, that big European vacation, your retirement or some emergency funds for unexpected events.
What are ways to keep track of what you’re spending and saving?
Now that you have a savings account, it’s important to keep up with where your money is going. Luckily, tracking your checking and savings accounts is easier than ever with so many user-friendly and free financial apps such as Mint, Clarity Money or an app from your own bank. They’ll automatically track your spending, which can help you budget, manage your expenses and keep an eye on your savings.
If you’re thinking about making a large purchase or adding more money into savings, some of these apps let you test out financial decisions to see how they would impact the rest of your budget. This gives you a no-commitment way to decide whether that big purchase or deposit is the right move for you.
Where do you go from here?
Depending on your short- and long-term savings goals, you may want to look into other savings options.
Money market accounts often require a larger minimum deposit, but can offer a higher interest rate, so you can earn even more from the money you’ve saved. You can also look into a Certificate of Deposit (CD), which is a no-market-risk approach to saving over a set period of time.
Just like fitness goals, think of savings goals as healthy habits. It doesn’t matter where you are in life—student, recent post-grad, new to the workforce, close to retirement—it’s never too soon (or too late) to start saving money. By starting a savings account, you’ll be doing something your future self will thank you for and better understand what you’re spending and what you’re saving.
This site is for educational purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
- “How do savings accounts work?” Retrieved November 6, 2019 from https://money.howstuffworks.com/personal-finance/budgeting/savings-accounts1.htm
- Anspach, D. (2017, August 21). "Safe Investments to Keep Your Money Secure." Retrieved January 5, 2018, from: https://www.thebalance.com/boring-safe-savings-account-2388905
- “Regulation D: Reserve Requirements of Depository Institutions,” Board of Governors of the Federal Reserve System (n.d.). Retrieved March 10, 2019 from: https://www.federalreserve.gov/supervisionreg/regdcg.htm
- Murakami-fester, A. (Nov. 2, 2018). “Savings Account Withdrawal Limits? Blame Regulation D.” Retrieved November 6, 2019 from https://www.nerdwallet.com/blog/banking/how-regulation-d-affects-your-savings-withdrawals/
- Pritchard, J. (2017, January 31). "Where to Open a Free Savings Account." Retrieved January 5, 2018, from: https://www.thebalance.com/where-to-open-a-free-savings-account-315776
- Lambarena, M. (2017, October 05). "How to Open a Bank Account and What You'll Need." Retrieved January 10, 2018, from: https://www.nerdwallet.com/blog/banking/how-to-open-a-bank-account-what-you-need
- "Save and Invest." (n.d.). Retrieved January 5, 2018, from: https://www.mymoney.gov/save-invest/Pages/saveandinvest.aspx