You’ve worked hard to save up some money. Even if it’s just what was hiding between the couch cushions, every little bit counts. But now what? It isn’t always easy to figure out what to do or where to put your money. For some people, a savings account can be a great place to keep your money safe while also helping it grow over time with interest. But before you open one for yourself, consider these 5 questions you may not have thought about.
For the most part, yes. Even if you have a very small amount of money (just a buck or 2 will do), you can use a savings account to keep it safe while earning interest. If you want to learn more about how this works, or why having a savings account may be a good choice for your money, check out the basics of a savings account.
To get started, you’ll just need a few key pieces of information to open a savings account, like your driver’s license, Social Security number, date of birth and contact information.1 But some people may have additional requirements to open an account.
If you’re under 18: You’ll probably need a parent or legal guardian to be a co-owner on the account.2
If you have a low credit score: Don't worry, you should still be able to get a savings account. The bank may look at your report to verify your identity, but it shouldn't affect your ability to get an account or your credit score.4
The number one way to know if your money is safe is to make sure your bank is a member of the Federal Deposit Insurance Corporation (FDIC), which is basically a big insurance company for money. Savings accounts are typically insured by this organization up to a set amount. In other words, if something were to happen to your bank, you’d get your money back.5 If you didn’t have an insured account and something bad were to happen at home, you wouldn’t have this kind of return policy.
The second way to know if your money is safe is to be smart about fraud and cyber security. Ask your bank about their fraud policy. You don’t want to be on the hook for purchases you didn’t make if someone gets your information. Many banks also have security measures like email or text alerts that can let you know about unusual activity right away.
Yes. You can withdraw from your savings (after all, it is your money), but keep in mind that you can only take money out up to 6 times per month.6 If you go over this limit, the bank may start to view, and treat, your money like a checking account, meaning you’ll still have access to your cash, but won’t necessarily earn that interest you get with a savings account.
Despite the rules for withdrawals, there’s no limit to the number of times you can make a deposit. Even if you set up an automatic savings plan so you save money each month, you can still deposit any extra cash whenever you like.
Plus, savings accounts can easily be closed at any time, and you can ride off into the sunset with your money.
Most savings accounts are free, but double-check the terms and conditions of the account you choose to make sure there aren’t any fees or costs you missed.
For example, some accounts could have maintenance costs or minimum balance fees. Some may also charge you if you go over your allowed 6 withdrawals a month or withhold interest if you dip below a certain amount.6 You work hard to save your money, so be sure you know if you’re getting charged. If you aren’t okay with the fees, look for a savings option that better fits your needs.
The nice thing about a savings account is that you can earn extra money through interest just for leaving your money in a secure place. But keep in mind that with earning money comes paying taxes. Even if you only earn a little bit, you’ll still need to pay taxes on the money you make through interest (not your original deposit).7 The IRS sees this interest money the same way they see the money you get from a job—money you’ve earned and therefore owe taxes on.
There are a few different kinds of savings accounts that specialize in retirement, and some of these are tax-free. But for a classic savings account, be prepared to pay taxes on the interest you earn. To calculate what you’ll owe, get your specific tax rate from the IRS.
While these 5 questions may not be the first you ask, they can help give you a better picture of a savings account and if it’s right for you. Having all the information up front will help you make an informed and empowered decision about what to do with the money you save.
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.
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