Main Street Finance

How Do Savings Accounts Work?

By Tina Irizarry

If you are thinking about starting a savings account, it is most likely a great idea! Savings accounts are a great way to do exactly what they say, “save money.” If you have questions about how or why you should open a savings account, you have come to the right place. This article will walk you through how to open a savings account and why it is important to have one.

How to open a savings account:

Do your research on banks! Maybe you want to open your account where you have your checking account, but if not, make sure you know all the ins and outs of the savings account you are choosing. Once you have chosen a bank, gather the below documents:

Driver’s license, government issued ID or passport
Social Security number
Most recent residential addresses
Email address
Date of birth
Bank account number and routing number (needed to fund your account)

After you have gathered your documents, you are ready to open your account, head to your bank or start the process online. Once the account is open, you will have to fund the account. You can automatically draft money from your checking account to your savings each month or have money from a paycheck go directly into your savings account. Whatever way you choose to fund your account is up to you!

What type of savings account should I have?

Most banks have three types of savings accounts:

Regular savings account: earns interest and offers quick access to funds
Money market account: typically earns more interest than a regular savings account in exchange for higher balance requirements; some provide check-writing privileges and ATM access
Certificate of deposit: usually has the highest interest rate among savings accounts and the most limited access to funds.

Choose what most fits your needs, talk to a financial advisor, and decide what account is best for you.

How do savings accounts work?

According to wealthsimple.com, a savings account works by opening and funding your account. In return, the financial institution pays you interest on your savings because they use your money to make loans to other people.

Why should I have a savings account?

There are a lot of reasons you should have a savings account, but to list a few:

It’s an emergency fund: Say your pet has an expensive emergency vet visit, you lose your job, you have an unexpected expense on your home, the money in your savings account is there for you and you don’t have to worry about not being able to afford a necessity because of an unexpected expense.
Do you want to buy a home? Or go on a lavish vacation? Your savings account can help you set money aside for things you want, like a new car, down payment on a home, or even to fund a dream vacation.
It helps you “save” more money: Don’t take money out of your account, let it sit, and watch it get bigger! Your savings account earns interest every month, so let it be and don’t touch it until you absolutely need to.

How do I earn interest on money in a savings account?

You literally don’t have to do anything, but let the money sit and keep adding to your account. When you put money in a savings account, the bank is technically borrowing the money and paying you interest in return. So.. free money!

So whether you are saving for a house, college, or that lavish vacation you’ve been dreaming about, opening up a savings account is a great option! Put your money somewhere safe and watch it grow!

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