Using a savings account
Financial Fitness

How to Have Your Own Back: Guide to Understanding and Opening a Savings Account

Let’s talk savings. If your car broke down right now, would you have the money to cover the repair, rental, and/or replacement? I drive a 20+ year old minivan so I’m constantly paranoid about unexpected car expenses. You with me? Turns out, almost HALF of all Americans would struggle to pay for a $250 “surprise” like a car repair. And unfortunately, a THIRD of Americans have less income now than before COVID.1

Maybe you also run the risk of bad things happening at any given time. Or you might have some future goals you don’t want to go into debt for. What if you’re facing income difficulties, or don’t have much money set aside? Now might be a good time to start saving. Here’s our guide on how to open a savings account. We’ll cover what it is, different types of accounts, possible fees and features, and some alternatives to think about.

What is a savings account and how does it work?

Basically, a savings account is when you set your money aside in a financial institution like a bank or credit union. The bank holds and invests your money, and they’ll pay you a small amount of interest (we’ll cover that down below).

Here’s the plus side for you: you keep your nest egg in a safer place than a piggy bank (also covered below), keep building it with regular deposits, and make withdrawals or transfers when necessary.

Uses for a savings account.

One common use is an emergency fund for unexpected expenses like a car or home repair, or in case you lose your source of income. Then there’s retirement savings. Other uses might include saving for a future goal like a newer car, a down payment for a home purchase, or a family vacation.

How much money you SHOULD save.

The amount of money you should have in your savings account depends on you and your goals. For an emergency fund, typically a good goal is to save 3-6 months of living expenses.2 For other savings, it depends on where you’re at in life.

For example, someone in their 20’s might want to focus on paying off debts. But someone in their late 50’s might want to have about 6x their annual salary saved up for retirement,3 not to mention health expenses, home and car repairs, and annual Christmas gifts for grandchildren.

Can you LOSE money in a savings account?

If your savings account is with a national bank or a reputable credit union, chances are you won’t lose your money. That’s because those financial institutions are probably FDIC insured, which means that the FDIC (Federal Deposit Insurance Corporation) will back your savings in case the bank fails, up to $250,000.

What’s the difference between a SAVINGS account and a CHECKING account?

With a checking account, your money is more easily accessible—you probably have a debit card and/or checkbook that you use to pay bills directly from your account.

With a savings account, you usually earn more in interest but the number of withdrawals and/or transfers might be limited. Most savings accounts won’t come with checks or a debit card, so it’s harder to use a savings account for paying bills.

Different types of savings accounts.

Yikes, seems like there are too many savings options out there to decide. Here are some of the most common ones:

Individual account.

If you don’t already have one, this is probably the first one to start, and it’s just in one name: yours.

Joint account.

This is most commonly used for couples who manage their money together, adult children who share a bank account with their elderly parent, or parents opening a joint account with their children.

Retirement savings.

Retirement savings typically take the form of an investment account like a 401K, IRA, or pension plan.

Things to consider before you open a savings account.

I would seriously recommend shopping around before you settle on a savings account. You’ll want to look for the following:

Low fees.

You might not have ANY fees if you go with the same bank as your checking account, or if your balance is above a certain amount.

FDIC insured.

This is usually displayed at the bottom of the bank’s website, but you can also call the FDIC at 877-275-3342 or use their BankFind tool.4


Sometimes banks will offer sign-up bonuses ($100?? CHA-CHING!) for new accounts with certain minimum initial deposits.

Easy withdrawals and deposits.

Can you make at least five withdrawals each month? Will you be able to make deposits online, or will you have to visit a branch during banking hours?

Low minimum balance requirement.

How much money will you need to keep in the account at all times to avoid fees?

High APY.

Will your money make money? In other words, will you earn a high APY (Annual Percentage Yield), or will it be less than 0.50%?

Low initial deposit.

How much money will you need to deposit up front in order to open the account? (This is typically about $25.)

Automatic transfers.

An easy way to build up your savings with minimal hassle is to set an automatic, recurring transfer from your checking account to your savings account. (Think: $25-50 per month for starters.)

Envelopes or buckets.

If you have multiple goals (vacation vs. emergency), you could use envelopes or buckets, (basically like sub-accounts) which are offered by many online savings accounts.5 This could help you visualize your savings and stay organized while still earning and compounding interest on your total savings balance.6

What you might need to open a savings account.

Each financial institution has slightly different requirements, but here are some common ones:

  • Driver’s license or photo ID
  • Social Security Number
  • Account number and routing number (to fund your account)
  • Email address
  • Date of birth


A traditional savings account might not be right answer for everyone. If you’re looking for higher APY or more accessibility, here are some common alternatives to a savings account:

Money market account.

These usually have a higher APY (holla!) but might require a higher initial deposit as well.

Checking account.

If you need access to your savings multiple times every month, a high interest checking account might be a good option.

Certificate of deposit (CD).

A CD is usually good for larger amounts of money over longer periods of time. According to the U.S. Securities and Exchange Commission, a CD is one of the safest savings options.7

U.S. savings bond.

This is basically like loaning money to the federal government—you buy a bond for $25-$10,000,8 and after 20+ years, you can cash it out to get back your money, plus interest. To purchase a savings bond online, you first need to open an account with

Start saving now.

No matter where you are in your savings journey, it’s never too late to start. (My minivan went kaput since I started writing this, so I’ll be dipping into my own savings shortly!) I recommend shopping around for the best savings account you might be eligible for, and consider all the applicable fees and features you might want (or want to avoid). Once you decide on one, gather the required info, open the account, and start saving a bit every month. Try this savings goal calculator to find out how much it could grow over time. Happy saving!


  1. Nguyen, J. (2020, October 15). Americans on shaky ground financially, speaking out more on racism, poll finds. Retrieved from:
  2. Ramsey Solutions. (n.d.) Dave Ramsey’s 7 Baby Steps. Retrieved from:
  3. O’Neill, B. (2018, January). Financial Planning Milestones for Different Ages. Retrieved from:
  4. FDIC. (n.d.). Deposit Insurance FAQs. Retrieved from:
  5. McGurran, B. (2021, January 6). How to Budget Using Multiple Accounts. Retrieved from:
  6. Ally. (2020, February 3). Buckets and Boosters: Make Your Money Perform Smarter Than Ever With Our New Smart Savings Tools. Retrieved from:
  7. U.S. Securities and Exchange Commission. (n.d.) Certificates of Deposit (CDs). Retrieved from:
  8. Treasury Direct (.n.d.). Series EE Savings Bonds. Retrieved from:
Brittany Wren
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Brittany Wren

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