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A savings account is a great way to save for something you want or need.
A savings account is a great way to save for something you want or need, like a new car, vacation, college education, or another goal. It can also be used as an emergency fund for unexpected expenses. Keeping your savings separate from your spending money helps you resist the temptation to dip into the funds you’ve worked hard to set aside.
A credit check isn't required to open a savings account, so it won’t hurt your credit score. However, your banking history may be reviewed to ensure there haven’t been issues like overdrafts or closed accounts in the past. Let’s explore how savings accounts work, their benefits, and how to open an account.
Opening a savings account won't affect your credit history or score since no credit check is required. However, most financial institutions will review your banking history through a system called ChexSystems to verify that there haven't been any past account issues. ChexSystems shows your previous checking and savings account activity, like overdrafts, bounced checks, unpaid fees, or accounts that were closed due to nonpayment or other issues.
The information in your ChexSystems report can impact your ability to open new checking and savings accounts. If you have a payment history that includes unpaid overdraft fees or a negative balance, the financial institution you owe could also send the debt to a collection agency. Once in collections, the account could be reported to the credit bureaus, which may lower your credit score and remain on your credit report for up to seven years.
A savings account is more than a place to keep your money. It also helps your savings grow over time. Here are some of the main advantages:
Unlike a certificate of deposit (CD), the money in a savings account is available when you need it, so it’s ideal for an emergency fund. Although you can’t use a debit card with a savings account, you can easily access your money by transferring it to your checking account for bill payments and other needs through online banking or by making a cash withdrawal at a branch.
The money you keep in a savings account is insured for up to $250,000. If your account is with a bank, it’s covered by the Federal Deposit Insurance Corporation (FDIC). If it’s with a credit union, your funds are insured by the National Credit Union Administration (NCUA).
Savings accounts are considered low-risk because your money is securely held in an account that’s backed by federal insurance. They’re generally safer than investments that can fluctuate in value with changes in the market, like stocks, commodities, or cryptocurrencies.
You’ll earn interest on the money you keep in a savings account. The financial institution pays interest because it uses the money to fund loans for other people. The interest you earn on your savings is usually compounded daily and paid monthly. The balance can grow over time from the compounding of interest, where you earn interest on previously earned interest.
You can schedule monthly transfers from your checking account to your savings account to grow your balance on autopilot. This helps you stay on track with your savings goals, even when life gets busy and you forget to make deposits.
Linking your savings account to your checking account can help you avoid costly overdraft fees. When an overdraft occurs, money is automatically transferred from your savings account to your checking account to cover the balance.
Opening a savings account is quick and easy and can usually be completed in just one visit. Many financial institutions also let you open an account online or by phone. Here’s how to get started:
Gather all the required documents and information before applying to help ensure a smooth process and prevent delays.
You’ll need:
The type of savings account you open determines who can access and manage the funds. If the account is just for you, choose an individual account. If you want to allow another person to deposit or withdraw money, choose a joint account instead.
Provide the information listed in Step 1 to the financial institution to open your account. You’ll then review the disclosure document and agree to the terms and conditions. Your account may be approved within one to five business days.
You can add money to your new savings account by writing a check, transferring funds electronically from another financial institution, or moving money from your checking account if it’s held at the same bank or credit union.
Direct deposit is a convenient way to receive your paychecks. You can also direct a portion of your income to your savings account each month to effortlessly grow your savings.
Just as opening a savings account doesn't affect your credit score, the act of closing a savings account also won't affect your score. Keep in mind, however, that if your closed bank account is sent to a collection agency for unpaid fees or a negative balance, your credit score may be affected if the reporting agency sends the information to the credit bureaus.
It may make sense to close your savings account when:
On the other hand, closing your savings account may not be a good idea when:
Keeping your savings in a checking account isn’t ideal. You’ll miss out on earning interest, and you may also be tempted to spend the money you are setting aside. That can slow your progress and make it harder to reach your financial goals. A savings account allows you to earn interest, and it helps you stay on track.
At Baton Rouge Telco, we make it easy to start saving. Our savings accounts don’t have any monthly or minimum balance fees, and overdraft protection is just $5 per transfer. Our friendly member service team is always here to help you open an account and answer your questions.
Explore our savings accounts today to discover their features and benefits, and find the best option for your needs.
Federally insured by NCUA. Your savings federally insured to at least $250,000 and backed by the full faith and credit of the United States Government – National Credit Union Administration (NCUA), a U.S. Government Agency.
