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Your Ultimate Guide to Opening Your First Savings Account

Learning the importance of saving account is of the many important money lessons. In MoneyTree, we emphasize the importance of savings account when it comes to teaching kids about money. Irrespective of how much you earn, there are many reasons to open a bank account. Keeping cash at home may sound convenient, but is it safe?

It can get stolen, lost or spent on things you do not need. A savings account is the only place to keep your hard-earned money safe, hence it is an essential practice in money management.

Definition of savings account:  A deposit account held at a bank that gives interest

When teaching kids about money, kids must be taught that it is not just about how much money you have, it is also about how much money you can easily reach and use. This is because life is unpredictable and you never know when and how much money you may need in case of an emergency.

A savings account gives you a peace of mind by letting you know that your money is in safe custody and accessible at will. Creating a savings account for your kid also hones your child’s money management skills. You can set a target for their savings account and encourage your kids to spend wisely and save to achieve the target – rewarding them along the way helps too. In our program, we learnt that such experiential learning method is effective in teaching kids about money. A savings account is not all perfect. Interest rates on savings accounts are rather low these days, hence the initial goal of saving isn’t to gain a high rate of return, but to preserve capital and feed investments. Take the plunge and help your children open their first bank account without hustle. The following tips will help:

1. Shop around and compare the fees, benefits and other features.

While opening a new bank account is typically free, some banks do charge monthly or annual maintenance fees. Whether you are opening a savings, student checking, or retirement account, choose your bank carefully. Just because one bank charges fees doesn’t mean it’s a swindler. If it has a good reputation, then why not? Depending on the account features, bank maintenance fees can range from $10 to $25 a month. If you open a bank account with no monthly fees, you may put that $10 or $25 in your savings account each month. But be sure to read the fine print to ensure there’s no additional annual fee. There are also banks that require a minimum opening deposit. This minimum can range from $50 to $500. This factor often stops people from opening a savings account, but it doesn’t have to stop you. If you do better research, you can open your first account with as little as one dollar in your wallet. If there is no alternative out there, do consider putting up this minimum for your children. It is definitely a worthwhile investment when it comes to teaching kids about money.

When choosing between banks, carefully compare the interest rates along with the fees and minimum deposit. Many banks may trick you into thinking you are getting higher interest while you are actually paying more fees. Also, compare other benefits such as which bank offers online services. Lastly, some banks have fees they don’t tell their customers about. Some fees to watch out for are overdraft fees, ATM fees, minimum usage fees, checking fees, annual fees for the account, minimum balance requirement fees, and activity fees. Gather information and learn about these fees as much as you can.

2. The highest interest rate doesn’t mean the best

Don’t let a bank lure you into a trap with their highest savings account interest rates. When people open their first savings account, they often choose the banks that offer unbelievably high-interest rates. The truth is, there are tons of hidden fees and restrictions behind those rates. Savings account interest rates are rather flat and most financial institutions have similar rates that range from 0.01% APY to 1.05% APY, depending on the amount of money you deposit. There’s also compound interest to consider. Some online banks offer higher interest rates with up to 3% APY, but safety comes first. The brick-and-mortar banks are obviously safe, but if you do want to get a bit higher rate than 1% APY and open a savings account online, make sure that your potential online bank is insured by the government and has been functioning for at least 5 years.

3. Check for additional services like online banking

Although most banks offer online banking, there are still a few that don’t. Confirm this before you open your account. Online banking provides a host of benefits, including the options to pay your bills online, make deposits electronically, transfer cash from other accounts, and many more. You can do it all without leaving your home. Additionally, some banks offer mobile banking that allows you to check your accounts via your smartphone. Both online banking and mobile banking are usually safe to use due to a high level of protection. Plus, they are absolutely free, unless the fine print says otherwise.

4. Read the fine print

The fine print is what almost all people never read. First, it’s long and exhausting. Second, we’re so excited by the offers the banks give us that we don’t even think about those tiny letters. Ignoring the fine print may cost you tons of money, though. You won’t be able to return the cash you spent on “mysterious” additional fees because you personally agreed to pay them when signing the documents without reading the fine print. It’s not only about the fees, but about the alluring promotions too. For instance, some financial institutions offer from $100 to $300 to new customers who open savings accounts.

Sounds lucrative, right? However, the fine print says that in order to get that reward you must deposit $15,000 or more within 10-20 business days, and keep a $15,000 balance for at least 3 months. Now, do you still want to open a saving account in the bank that offers the $100 reward? Experts define fine print as the real truth behind breezy promises. In other words, if you want to find out true information about the fees, interest rates, and special offers that come with prohibitively strict qualifications, take your time and read carefully the stuff that’s written at the end of your contract.

5. Choose the savings account that has government guaranteed insurance

Keeping your cash in a shoebox, or a book, or under your mattress, sounds like an excellent way to keep your funds safe. However, if someone steals your money, you have very small chances to get it back. When you keep your funds in a savings account and your bank’s deposits are insured by the government, you can be sure that your money is safe, even if your bank fails. The government protects people against the loss of their deposits in case the bank fails. Avoid banks that offer their own special guarantees – they actually mean nothing at all.   You are never too young to think about your financial future and start a savings account. It’s great to enjoy your hard-earned money, but remember we all have financial obligations and emergencies hit hard and unexpectedly. Opening a saving account is easy, but without proper research, you risk getting into a trouble. Keep these tips in mind when opening your first bank account and luckily you won’t have any problems down the road.

Important takeaway: When teaching kids about money, kids must be taught that it is not just about how much money you have, it is also about how much money you can easily reach and use.

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