Do you need to open a new bank account? If you’re armed with the right information, opening an account online or in person won’t take long. In some cases, you can apply for a checking or savings account in a matter of minutes.
Whether you’re a first-time banker or changing from one financial institution to another, here’s information that may help make the process easier. We’ll review what you’ll need to open a bank account and highlight the differences between checking, savings, and investing accounts. We’ll also share some details about how to use a new bank account. Ready? Here we go!
Why Open a New Bank Account?
You probably know that bank accounts offer convenience, safety, and flexibility. In fact, if you’re like most people, you probably already have an account or two up and running. But sometimes, there’s a good reason to start a new bank account. Perhaps you want to open a savings account in addition to your checking and earn more interest as you work towards a goal, like the funds to pay for a vacation. Or maybe an online bank offers a great incentive (say, a higher interest rate and fewer fees) than the bricks-and-mortar financial institution you are currently using.
No matter what the incentive, if you’re ready to start a new bank account, let’s take a look at what’s required and how the process works.
What Will I Need to Open a Bank Account?
Here’s a list of what you are likely to need when opening a bank account. Gathering them before you actually begin the process of starting a new account will help you save time and frustration:
• Qualifying information: First, you’ll need to make sure you’re eligible to open a bank account. If you’re under 18, many (but not all) banks may require a parent or legal guardian to open the account with you.
• Identification: You’ll also need to provide a valid government-issued photo ID such as a driver’s license, non-driver state ID card, or passport.
• Personal information: Be prepared to provide basic information such as your birthdate, Social Security or Taxpayer Identification number. You’ll also need to give contact information such as your address, phone number, and email.
◦ Other account holder information: If you’re opening a joint account, you’ll need the identifying and personal information listed above for all the account owners.
• Initial deposit: You will likely need an initial deposit when opening a bank account. The minimum amount required to open an account varies from bank to bank but in some cases, it can be as low as $25. In some cases, it may even be absolutely zero! (We’ll share more on this in a minute.) If you’re transferring the minimum deposit from another bank, you will likely need the routing and account numbers.
• Username and password: If you’re applying online or opening an account at an online-only bank, you’ll need to establish a username and password.
• Signatures: If you are applying for an account in person at a branch, you’ll be able to sign all documents there. If you’re applying online, you may be able to use an e-signature, or, depending on the bank, you may have to wait and sign documents that are sent to you via the mail.
Choosing a Bank Account
There are two main types of basic bank accounts: checking and savings accounts. Many people choose to open multiple types of bank accounts at the same time.
If you’re looking for a bank account to use primarily for paying expenses, a checking account with no or low fees is probably best. If you are trying to save for short-term goals such as a car, vacation, or down payment on a home, a savings account may fit your needs. Here’s a closer look.
A checking account is held at a financial institution and allows withdrawals and deposits. Checking accounts are liquid. In most cases, you are allowed an unlimited amount of deposits and withdrawals. That’s different from most savings accounts that may limit transactions.
You can get to your money using checks, ATMs, electronic debits, and debit cards tied to the account. You can deposit using ATMs, direct deposit, and over-the-counter deposits.
Some checking accounts may pay interest on your balance, but at a very low rate. Almost all bank checking accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per individual. This protects your money against sudden bank closures and other crises.
Many banks offer apps and other digital tools that help keep track of your checking account balance. They also enable you to make deposits, transfers, and automatic bill pay, as well as provide general budgeting and financial information.
Depending on where you open the account, there may be minimum balance requirements and other fees to contend with, such as overdraft or non-sufficient funds (NSF) fees, if your balance dips below zero.
A savings account is an interest-bearing account also held at a financial institution. Savings accounts are an important source of funds for banks and other finance companies to use as loans. Just about every bank and credit union offers them, and they can be a good place to save funds you’ll need in the short term while still earning a modest amount of interest. The minimum deposit is usually in the range of $25 to $100. A word to the wise, though: High-interest savings accounts may charge a monthly maintenance fee that can erode your interest earned and your savings.
Like checking accounts (but unlike investment accounts), most savings accounts are FDIC-insured. The amount of withdrawals you can make over a certain period of time may be limited (often six per month). Savings account interest rates vary, but in most cases, the amount of interest paid is quite modest (though online banks tend to offer higher rates than bricks and mortar banks). This is especially true when comparing them to less-liquid savings vehicles such as CDs. With most savings accounts, banks may change their rates at any time.
One last thing to remember: Any interest earned on a savings (or checking) account is considered taxable income and will be reported to the IRS. You will also want to check with banks to see what the minimum deposit and balance requirements are and what kinds of fees are applied to savings accounts.
Recommended: How Does a Savings Account Work?
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Another option is to start a brokerage or investing account. These are quite different from checking and savings accounts. Opened usually with a brokerage house, these typically allow you to buy and sell a variety of investments, such as stocks, bonds, mutual funds, and ETFs. These accounts typically offer a way to grow your money at a higher rate of return than a standard savings account. But (and this is important), they are riskier. These accounts are volatile, like the stock market, meaning you could see your account’s value swing up and down. Also, they are not FDIC-insured, so you could lose money. For this reason, they tend to be used for longer-term goals like retirement savings, where over a stretch of time you will see rewards. Over time, they offer the opportunity to reap much higher returns than savings accounts.
You may be able to open one with no money down, but you’ll have to transfer funds in to purchase investments. Keep in mind that, unless you are working with a broker, you are responsible for this money and how you invest it. There may not be a fee to open this kind of account, but if a broker is involved, there may be a fee, as well as transaction fees, and tax implications on money earned. This is a situation in which you definitely want to read the “fine print.”
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Understanding Bank Account Fees
Fees are one of the most important considerations when opening a bank account. Some banks charge a fee for opening a checking account, and many charge a monthly maintenance fee based on your balance and the account services you use. Almost all banks charge an overdraft fee when you make a transaction worth more than your balance.
Some savings accounts charge monthly fees on balances under a certain amount. Others require you to maintain a certain balance in exchange for a slightly higher interest rate. Because savings accounts pay such a low rate of interest, you want to be particularly careful that fees aren’t eating into or eliminating your earnings.
In general, online banks offer lower fees than traditional branch banks or no fees at all. They often require lower minimum deposits to start an account. But you may end up paying more in out-of-network ATM fees when using an online-only bank. You’ll want to carefully compare all your options to find a bank that offers the services and convenience you need for the lowest fees.
Also, with an investing or brokerage account, you may well be paying fees: brokerage fees to maintain the account and handle transactions, and if a broker is working on your behalf, you may be paying commissions too. Make sure you understand how those are assessed or you could be surprised by how they add up.
Recommended: How to Find a Free Checking Account
Funding Your Account
You will likely need an initial deposit to open your checking account or your savings account. For checking accounts, this can be as low as $25 or $100, depending on the bank and the account services you’ve signed up for. In some cases, though, a bank (usually an online bank) may let you open an account for less – even with no money until your first paycheck is deposited, for instance.
You can transfer money from an existing account at a bank or credit union into your new account, but be aware the existing account may charge a fee for this. If you’re opening an account in person, cash or a check will work. In some cases, you may have to wait several days for a check to clear before you have access to those funds.
Using Your Account
After your account is opened and funded, you’re ready to go. Be sure to keep an eye out for anything coming to you in the mail, such as a debit card or paper checks.
Next, you’ll want to sign up for any electronic features associated with your account that may help you manage your money. This includes online bill pay, which allows you to pay bills electronically, eliminate paper checks, and take advantage of remote check deposits. Account alerts are another benefit of electronic bank accounts, as they can warn you about unusual activity in your account and if your balance is getting low.
This last feature is important: You’ll want to keep close track of the activity in your checking account to make sure you don’t overdraw. Most banks charge hefty overdraft fees for purchases that put the account in the red. Those fees can add up fast.
If you’ve opened both a savings and checking account, you may want to consider linking the two. This way, you may be able to avoid overdraft charges and have a place to put any extra money from your checking account into a more lucrative, interest-bearing account.
Additionally, if you open an investment account, you will want to keep a close eye on how your investments are performing and reallocate as necessary. This can be done via an app, website, or paper statements.
As you see, starting a bank account takes just a little bit of time and information. Doing so is an important step towards optimizing your financial life and giving you a place to keep your money, access it – and even grow it and put it to work for you.
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SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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