Developing a savings habit could be one of the most beneficial decisions you make in your financial life. If you are in a position to start building your nest egg, how do you go about it?
We’re here to break down everything you need to know about opening a savings account.
Opening a savings account and starting to build up your balance is a sensible financial move. Provided you have a little extra money each month after your fixed costs (including debt repayments) – even if it’s only £5 a month – you can start to build a habit that could benefit you in the years to come.
Having a nest egg or an emergency fund could help to make sure that when unexpected costs occur, such as your car breaking down or your fridge needing to be replaced, you’re not instantly reaching for the credit card or taking out a potentially costly loan.
Alternatively, you may want to save for a specific event or purchase. If, for example, you have a wedding coming up, a dedicated savings account could help you focus on your goal. Or if you’d like to buy a new sofa, regular deposits into a savings account could mean that you’ll be able to make that purchase without relying on credit.
You may also want to set up a savings account for your children to make sure they are provided for in the future. There are loads of savings accounts on the market designed specifically for children. You can read more about setting up a savings account for a child here.
Firstly, you need to select the type of savings account you would like. Online comparison sites can help you consider the level of access you want to your savings, how you would like to manage your account and what sort of interest rate you can achieve. As a general rule of thumb, if you lock your money away for a decent period of time, you are likely to achieve a higher interest rate than if you select an easy access account.
Once you have chosen your savings account, it’s a good idea to check with the provider how the account can be opened. Some accounts can be opened in branch, online or over the phone, while others may be online only. However, this should be made clear in the information about the account.
When completing your application, banks and building societies usually require you to provide your address, occupation and current bank account details. The minimum age for opening an adult savings account is typically 18.
Sometimes, providers will also ask you to provide a form of ID and proof of address as part of your application. If you are applying in branch, this will mean showing photographic ID, like your driving licence or passport, and something like a council tax bill or utility bill. If you are applying online, you may find these documents will need to be sent to the provider by post and returned to you once checked.
Once you have completed your application, this will be processed by the provider and you will receive confirmation of the account opening – including the account number and how to manage the account – within a few working days.
Some savings accounts are very straightforward: you can open them with a £1 deposit and start saving. However, some are slightly more complicated.
Depending on what type of savings account you decide to go for, you may find that there is a minimum deposit requirement. For example, in order to open the account you might need to deposit at least £500.
Similarly, the advertised rate may not kick in until you reach a certain deposit level. For example, savings above £500 might earn 1.25%, while savings below the threshold might only earn 0.25%.
Fees are not typically charged when opening a savings account, but you may find that you are charged a fee if you opt for a fixed-rate bond or notice account and try to withdraw money before the end of the term.
Savings accounts are very simple financial products at the end of the day. The most important thing is to try to pick the right one for your circumstances. Do you want to start small and be able to dip into your nest egg whenever you like? Maybe go for an easy access account. Do you have a large sum that you want to stash away for a few years? Maybe consider a fixed-rate bond.
Whatever account type you choose, it’s best to make sure you compare products before applying.
The Motley Fool receives compensation from some advertisers who provide products and services that may be covered by our editorial team. It’s one way we make money. But know that our editorial integrity and transparency matters most and our ratings aren’t influenced by compensation. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.