- What are the different types of savings accounts?
- Online savings accounts vs. traditional savings accounts
- Requirements for opening a savings account online
- Do you need to scan/submit your driver’s license/photo ID?
- Do you need to lift a credit freeze/security freeze? (If you have one)
- Do you need to fund the new account immediately using an existing routing number/account number?
- Online banks vs. brick-and-mortar banks
- Why do online banks pay more interest?
- Benefits and risks of a savings account
- Who should have a savings account?
- Are there fees associated with a savings account?
What are the different types of savings accounts?
Generally speaking, there is only one type of savings account. Some savings accounts may be called high-yield savings accounts but that doesn’t necessarily mean that they offer higher yields. Money market accounts also fall under the official definition of savings deposit accounts.
Some banks may also offer special savings accounts for children, while other institutions may one one account for everyone but allow accounts to be titled as custodial savings accounts.
Here are some possible titling options to designate the owner(s) of a savings account:
- Individual account: An account owned by a single person. No one else is allowed to access this account. (An exception can be if someone has a power of attorney for the individual account holder.)
- Joint account with rights of survivorship: If two people have a joint savings account — with no other beneficiaries on the account — and one of the joint owners dies, the account is paid to the living account holder.
- Payable on death (POD): If an individual savings account has one or more beneficiaries listed and the account owner passes away, these beneficiaries will receive the balance of the account. Appropriate proof, generally a death certificate, is needed. A beneficiary on a joint account, listed as POD, wouldn’t obtain a right to this account until the last account owner passes away.
- Uniform Transfers to Minors Act/Uniform Gifts to Minors Act (UTMA/UGMA): Typically, these types of accounts stipulate one custodian and one minor. The custodian manages the account for the minor until the child reaches age 18 or age 21, depending on the state.
Not all savings accounts are created equal. Many online banks, for example, pay higher yields than their brick-and-mortar counterparts. When choosing a savings account, consider APY, minimum deposit requirements and your financial goals. The best savings accounts should provide a competitive APY, but also give you the flexibility to securely withdraw or transfer money each statement period.
Online savings accounts vs. traditional savings accounts
One big difference between savings accounts offered by online banks and those offered by traditional banks is the APY offered. Online banks usually offer much more competitive yields. Brick-and-mortar banks tend to offer something closer to the national average, which is currently 0.13 percent APY, or they offer something that’s nearly nothing — 0.01 percent APY.
Another difference is branch access. Online banks offer savings accounts that give customers the ability to bank from anywhere at any time, but these online institutions typically don’t have any branches — so customers can’t visit them in person to perform basic banking tasks. Here’s how to make deposits into an online savings account:
- Direct deposit
- Mobile check deposits
- ATM deposits
- Mailing in checks
- Electronic funds transfers
- Wire transfers
In addition to offering branches for conducting bank business, some banks may provide an ATM card and/or a debit card for ATM access. Depending on the bank, you may be able to electronically transfer the money to an account that you hold at another bank. Other possible options for accessing money are cashier’s checks or official bank checks or by initiating wire transfers, which, generally, are more expensive methods.
Here are some of the ways withdrawals can be made from an online savings account at a traditional bank:
- ATM withdrawals
- Debit cards
- Electronic funds transfers
- Wire transfers
- Requesting a mailed check
Savings accounts are limited by Regulation D, which limits the number of transfers or withdrawals from the account to six per calendar month or statement cycle of at least four weeks.
Transfers, which are similar to withdrawals, made online, via check or some other method made by the depositor and payable to third parties apply toward your six-transaction limit. Withdrawals from ATMs are not counted toward the six-transaction limit, and many banks offer ATM access for savings accounts.
In late April 2020, the Federal Reserve Board announced an interim final rule to amend Regulation D so that consumers can make an unlimited amount of withdrawals or deposits from savings accounts. Banks aren’t required to suspend the rule, however, so the six-limit rule may still apply.
Requirements for opening a savings account online
Banks will likely have some slightly different requirements for opening a savings account online, though most require U.S. citizens to provide a form of ID and a social security number.
Here are sample requirements at three of the largest banks in the U.S. for opening a bank account:
Do you need to scan/submit your driver’s license/photo ID?
- Bank of America: No.
- Chase: The online application required information provided on an ID.
- Wells Fargo: ID information can either be entered on the website or a photo of the ID can be taken and submitted.
Do you need to lift a credit freeze/security freeze? (If you have one)
- Bank of America: Yes.
- Chase: Yes.
- Wells Fargo: Maybe. A visit to a Wells Fargo branch may be required.
Do you need to fund the new account immediately using an existing routing number/account number?
Online banks vs. brick-and-mortar banks
Why do online banks pay more interest?
In some cases, the biggest banks still pay their savings account customers less than 0.13 percent APY — the national average. Online banks, on the other hand, typically pay much more because they don’t have the costs associated with physical branches, giving them the opportunity to pay customers higher yields. Though online banks offer higher savings rates and charge fewer fees than traditional banks, consumers should also consider their individual financial needs, such as the need or desire to bank in person at a branch, when weighing where to open an account.
Benefits and risks of a savings account
Savings accounts, like all financial tools, come with benefits and risks. It’s wise to weigh the pros and cons to see if one of these accounts is ideal for your financial situation.
- Security: Savings accounts at an FDIC-insured bank are federally insured up to at least $250,000, making them great places to stash cash.
- Liquidity: You can access your savings in your account when needed. Savings accounts only allow for up to six withdrawals or transfers per statement cycle, but you won’t have to sell investments in order to get your money out.
- Earnings: The money you keep in a savings account earns interest over time and compounds, offering a return on the principal.
- Higher interest: The best savings accounts usually earn more interest than a checking account – and some even have a higher yield than money market accounts.
- Low-fee options: There are many savings account options that either have a $1 minimum balance or no minimum. With these options, it’s easy to avoid a maintenance fee.
- Access: Many savings accounts allow you to access your savings at ATMs with an ATM card. Just make sure the ATM is in the network to avoid any fees. Also, ATM withdrawals don’t count toward your monthly/statement cycle limit of six.
- Low interest: Savings accounts do pay interest, but it’s often much lower than can be earned with other savings vehicles like certificates of deposit or even some money market accounts. That can lead to a big opportunity cost — you may find higher returns elsewhere.
- Accessibility: Unlike checking accounts, savings accounts have a limit on the number of withdrawals and transfers you can make each month. Withdraw more than six times during a month, and you could get hit with a withdrawal penalty.
- Fees: Some banks charge minimum balance fees. Those maintenance fees can eat up any interest earned and your principal very fast, especially with low interest earnings.
Who should have a savings account?
Are there fees associated with a savings account?
Savings accounts may charge a maintenance fee if the minimum balance requirement isn’t maintained. Some savings accounts, however, don’t require a minimum balance or only require a nominal amount — and still pay competitive APYs. If the account’s minimum balance requirement is too high, consider finding a bank offering a similar APY with no minimum balance requirement — or a lower one. Finding a savings account with no monthly fee is the easiest way to avoid having surcharges eat into your interest earnings or principal.
Out-of-network ATM fees are another charge to watch out for, as are fees for closing a savings account before a specified period, typically three to six months. Banks may also charge fees for sending wire transfers, or purchasing cashier’s or official bank checks, utilizing funds in a savings account.