Questions to Ask When Opening a Savings Account

Opening a savings account can help you take control of your finances. You can use your account to save for a large purchase or to set up an emergency fund. Emergency funds can help you weather unforeseen occurrences. The common guideline is to save up to three to six months of your common expenses to take on any challenges that come your way. As you explore where to open a savings account, consider the following questions.

5 Questions to Ask When Opening a Savings Account

1. What type of savings account would suit your goals?

If you’re planning to open a savings account, you’ll first want to know the different options to determine which one would be right for you.

Traditional Savings Account
A traditional savings account allows you to start saving without the restrictions that other types of accounts require. You don’t need a terribly large sum to get started. (At First National Bank and Trust, adults can open a savings account with $50 and children can open one with $20.) A savings account earns more interest than a checking account — and certainly more than a piggy bank.
 
If you’re just starting to save, a traditional savings account will likely be perfect. And as your funds grow, you can investigate if another type of bank account might help you meet your goals.
 
Money Market Account
A money market account offers higher interest rates than a traditional savings account because, unlike a traditional savings account, the bank or credit union may invest the funds in certificates of deposit, government securities, or commercial paper. Your account, however, is fully insured by the Federal Deposit Insurance Corporation (FDIC). Money market accounts also offer check writing privileges and unlimited deposits.  Check with your financial institution regarding withdrawal limitations.
 
A money market account might be right for you if you have a large sum ready to save, but you’d like more flexibility than a certificate of deposit would allow.
 
Certificate of Deposit
When opening a certificate of deposit, or CD, you agree to deposit a lump sum and leave it untouched for a prearranged amount of time. The bank or credit union agrees to provide a premium interest rate over that time. Your exact interest rate may depend on the size of your balance and the duration of your maturity timeline. Your aggregate deposit investment is fully insured by the FDIC up to $250,000 per accountholder. [LZ1] If a bank participates in CDARS, it allows for more insurance by spreading out the CDs through a network member.
 
A CD may be a great savings account option if you’re saving for a specific long-term goal, like buying a new car, putting a down payment on a house, or taking a big vacation. Opening a CD is also only right if you have a fairly large amount ready to invest and you won’t need to access these funds before the account has reached maturity.
 
Health Savings Account
A health savings account, or HSA, allows your money to grow tax-free, but the funds must be used for qualifying medical expenses, such as medical, dental, or vision care, as well as the cost of prescription medications. The interest accrued in the account is also tax-free, which can help grow your funds over time.
 
You may be interested in a health savings account if you have a high-deductible health plan and regular health-related expenses for yourself or your family.
 
Individual Retirement Account
There are two types of Individual Retirement Accounts, or IRAs, a traditional IRA and a Roth IRA. The main difference between them is when you pay the taxes on the funds. In a traditional IRA, your money can grow tax-free, but when you withdraw funds (after age 59½), it will be taxed as income. When you contribute to a Roth IRA, you pay tax at that time, but your money grows tax-free. Then, you can make tax-free withdrawals (again, after age 59½).
 
Either type of IRA is a smart idea when you’re saving for retirement. Even if you have an employer-sponsored plan, like a 401(k), an additional source of retirement savings can help you feel more secure and pay for long-term care if you need it after you stop working.
 

2. Do you already have a checking account at a bank?

You may qualify for special rates or deals if you open both accounts at the same bank. Additionally, if both accounts are with the same organization, it can be easy to transfer money between them or set up automatic transfers to your savings account.
 

3. How much do you need to open a savings account?

Banks and credit unions almost always require some type of opening deposit amount to open a savings account. Compare how much you have to deposit with their requirements. While you’re investigating the minimum balance required to open, ask if they require you to maintain a minimum balance going forward.
 

4. What account fees will you incur?

You may be charged monthly service fees, an overdraft fee, out-of-network ATM fees, or wire transfer fees. As you’re making plans to save for your future, make sure too many fees won’t stand in your way.
 

5. What is the Annual Percentage Yield?

The annual percentage yield, or APY, refers to the interest rate you earn for keeping your money at the bank or credit union. Many places offer a tiered interest structure, meaning you can earn higher levels of interest as your account grows.
 
When you open a savings account, you’re investing in a more secure financial future. If you’d like to discuss your savings account options, and which one might be right for your lifestyle and goals, contact us at First National Bank and Trust. We’d be happy to assist you. Check out these 10 reasons to choose a community bank like FNBT.