At some point, almost everyone has had to learn how to open a bank account. While there are some standard rules most banks follow, the details of how you open your bank account depend on the specific bank you choose. As a general rule of thumb, smaller, online banks tend to make the process easier than larger, traditional banks.
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What Are Some Benefits of Opening a Bank Account?
Like the process, the specific benefits of opening a bank account depend on the bank you choose. The type of account you open also plays a role. These are the most common ones that tend to overlap across banks and account types.
Protection
When doing research on how to open a bank account, you may notice that most banks provide deposit insurance up to a certain total value. Most often, protection tops out at $250,000. This means that if the bank fails, you are guaranteed to get your money back.
Interest
Banks pay interest on savings to encourage you to save with them. Interest tends to be comparatively higher with online banks, particularly for high-interest accounts. Some banks also pay interest on checking accounts, but this is a rarer find.
Convenience
You can access your money almost immediately when you have a bank account. Even when paid by check, many banks now allow you to make a deposit via an app. If you pool finances with someone, such as parents or a spouse, bank accounts make this easier.
Credit
Borrowing money is a common reason people need to learn how to open a bank account. Some banks offer you better terms for lending if you have other accounts with them. In fact, some may not allow you to borrow money from them at all without opening a checking or savings account.
Who Needs To Open a Bank Account?
Technically, no specific demographic of people needs to open a bank account. However, there are some people who may benefit from one more than others.
Couples
People in committed relationships may use joint bank accounts to better orchestrate shared payment of bills. This is especially common among parents and married couples.
Workers
Most employed people have bank accounts. Direct deposit is a much faster way to access money than most other options.
Entrepreneurs
Whether you employ 100 people or freelance as an independent contractor, bank accounts can make your life much easier. In fact, the IRS may become suspicious of a business operating by cash only.
When Should You Open a Bank Account?
Learning how to open a bank account is a valuable skill you can apply at any stage of your life. Even children can have bank accounts, with the assistance of their parents or another guardian. There are several specific instances when you should consider opening your first or a new bank account.
Adulthood
If you didn’t have a bank account as a child or shared one with your parents, consider starting one for yourself at 18. Try not to wait until you absolutely need one to get one.
Employment
Employers may require you to set up direct deposits with a bank as a condition of employment. According to Cornell Law School, federal law only prohibits them from forcing you to choose a specific bank.
Immigration
People who pursue immigration through marriage need to take several steps to prove their marriage is bona fide. USCIS agents often ask for couples to have joint accounts together as the bare minimum.
What Are the Features and Benefits of Opening a Bank Account?
Before discussing how to open a bank account, it is important to discuss the many benefits and advantages of opening one. There are two primary reasons to open an account: safety and convenience. When you put your money into a bank, the federal government insures it for up to $100,000. Your money is also protected against fire and theft.
Beyond insurance and protection, a bank account offers convenience. It is straightforward to schedule direct payments to your bills and other financial obligations. Also, with a debit or ATM card, you can easily withdraw funds or make payments directly at a store.
While protection and convenience are nice, a bank account also allows your money to grow over time by generating interest, and it helps save you money by offering several free and low-cost services, like check cashing, transferring money, paying bills, etc.
Finally, establishing yourself at a bank can help you access credit. Most banks prefer to work with existing clients, especially those who manage their finances well. If you are looking to buy a car or home or borrow a personal loan in the future, it is an excellent idea to establish yourself at a bank.
Examples of How To Open a Bank Account
Example 1: John just turned 18 and found a summer job doing bookkeeping work for a local store. The employer requires workers to have a bank account. John visits the bank his parents have often mentioned and opens an account. His bank then provides him with the paperwork to submit to his employer for setting up direct deposits.
Example 2: Lucy separated from her husband and wants a new bank account to manage her own money. She finds an online bank, applies and receives approval in a few seconds. She orders an ATM card and submits a request to her employer to send her pay to the new account.
Steps for How To Open a Bank Account
Most banks now allow you to apply for a bank account online, but you may prefer to visit a local branch. Note that some older traditional banks only allow people to open accounts in person. This is especially likely if you intend to open a joint account. Here are the basic steps to follow, regardless of the route you choose:
- Do research to determine what banks can provide the specific benefits you need or prefer.
- Call the bank or check the website to find out what its process is for opening a bank account and what information you may need.
- Gather all the documents you need.
- Apply for the bank account in person or online.
Quick Questions
First decide if you wish to do business with a traditional bank, online bank, credit union or a combination. Do an online search to see highly rated recommendations. Common criteria for choosing accounts include the following:
Low or no maintenance fees
Low or no minimum balance requirement
High interest rates
ATM accessibility in your area
Online accessibility
Under federal law, banks require a legitimate ID and your Social Security number. Some may be stricter than others when requesting proof of address.
Checking and savings accounts are the most common options. You may also consider money market accounts, credit accounts and certificates of deposits.
Now that you know how to open a bank account, research good money management. You can find this and more on our blog.
