Whether you prefer online banks, traditional brick-and-mortar banks, or some combination of the two, opening a bank account can be fast and easy — given you are prepared.
It starts by knowing which type of bank account you want to open, a question that 7.1 million unbanked Americans might not know how to answer at first. Checking accounts and savings accounts are the two most common types of bank accounts, but there are other types of accounts that have different requirements and serve different purposes.
Typically, consumers have at least one checking account used for everyday transactions and a savings account used for keeping an emergency fund or saving up for specific financial goals. If you don’t have one of these accounts but want to open one, here’s how to do so — plus, how to choose the right bank and account type for your needs.
How to Choose a Bank or Credit Union
Everyone has different preferences when it comes to what type of banking relationship they want to have.
Sometimes, you might hear people argue that credit unions are better than traditional banks. Credit unions are a popular choice among people who like the competitive fees and comparatively lower-cost lending products that credit unions can offer thanks to their nonprofit membership model. Because credit unions are owned by the members, they can distribute the interest generated by lending back to the account holders themselves, making their loans, credit cards, and mortgages worthy of looking into.
Traditionally, credit unions also offered a more community-oriented feeling to the banking experiences, and sometimes their savings accounts offer higher interest rates than those of the big banks.
Though not the case 100% of the time, credit unions tend to be affiliated with a type of organization, region or locality, profession, or government agency. For example, Navy Federal Credit Union was founded near the end of the Great Depression by employees of the U.S. Navy Department. Meanwhile, other types of credit unions exist for teachers, employees of a particular company, or members of a professional or consumer association.
No matter if you decide to go with a bank or a credit union, here are some factors you should consider when deciding where to open an account:
- What is the annual percentage yield (APY) on balances held in your account? The APY will determine how much interest you earn on the money in your account. Typically, high-yield savings accounts offer higher APYs than traditional savings accounts. Checking accounts rarely pay interest on balances, and if they do, the APY is often much lower compared to savings accounts.
- Do you need easy access to a physical location? If having access to a physical branch or in-person customer service is important to you, you may want to choose either a local bank or credit union or a national bank with branches in your area. If you don’t care about physical proximity, an online-only bank may suit your needs just fine — and offer higher interest rates, lower fees, or other benefits.
- What are the fees and minimum balance requirements? Depending on the bank or credit union, you may be charged a regular monthly maintenance fee or fees for specific actions, such as ATM fees or overdraft fees. Some banks may charge maintenance fees but waive them if you satisfy certain requirements, such as maintaining a minimum balance of a certain amount or having a certain number of direct deposits into your account each month. Other banks don’t charge any maintenance fees and waive other common fees like ATM or overdraft fees.
- Are your deposits federally insured? When choosing a bank account, make sure that it’s insured by the Federal Deposit Insurance Program (FDIC). FDIC insurance protects your deposits up to $250,000, meaning that your money will be protected in the event your bank goes out of business. Credit unions don’t have FDIC insurance. Instead, funds are protected by the National Credit Union Administration (NCUA), which insures your deposits for $250,000 if your credit union fails.
Online bank vs. brick and mortar bank
Even though online-only “neobanks” like Ally Bank have been around for more than a decade, some consumers still wonder whether online banking is as safe and reliable as banking at a big traditional bank, such as Wells Fargo or Bank of America.
Online banking has become more popular since the pandemic, with more consumers appreciating the convenience. The pandemic era saw many people “turning to online banking and downloading their bank’s apps for the first time,” says Allie Fleder, COO of SimplyWise, a retirement and Social Security resource site.
Because online banks have fewer overhead costs, they can often pass those savings onto the consumer via higher APYs on saving account balances, lower fees, or both. As long as the online bank is FDIC-insured, your money will be just as safe as if it were with a traditional bank.
Brick-and-mortar banks come with perks such as in-person customer service and access to physical locations that make certain transactions, such as depositing or withdrawing cash, easier. If having an in-person banking experience is important to you, consider sticking with a bank that has a physical branch.
Most of the time, the difference between online and brick-and-mortar banks isn’t as stark. Many traditional banks also offer online banking services or a mobile app in addition to their in-person branches.
Research what bank features are important to you. A mobile app, ATM or branch proximity, low fees, and competitive rates could all impact whether or not a bank is right for you.
Choosing an Account
Banks offer a few different types of personal accounts that you can open. You can narrow down which type is best for you by asking yourself what the main purpose of your account is.
Most people will choose between a checking and a savings account — or get both — when first starting out. No matter what type of account you get, you should choose a bank that you feel comfortable and happy using on a regular basis, whether online or in your local community.
Checking vs. Savings Accounts
Checking and savings accounts are both considered deposit accounts and make for secure options when storing your cash. However, they serve different purposes and have some key differences:
|Checking Accounts||Savings Accounts|
|Ideal for everyday transactions||Better for long-term savings|
|Unlimited withdrawals, transfers, checks, bill pay, and debit card purchases||Limited to 6 transactions per month|
|Come with a debit card and sometimes a checkbook||Typically, does not come with a debit card and check writing privileges|
|Tends to have low interest rates, or doesn’t pay interest on balances at all||Tends to have better interest rates so you can earn more on your money|
What You Need to Open a Bank Account
Opening a bank account can be a quick and easy process if you have the necessary documents and information at the ready. Here’s what most banks will ask you to provide when opening an account:
- Your contact information, such as your phone number, email address, and physical address.
- A government-issued ID like a passport or driver’s license. The ID should show your legal name, picture, date of birth, country of citizenship, and current address. Some banks may require more than one form of ID.
- Your Social Security number or tax ID number.
- Proof of address, such as a utility bill.
Your bank may require you to make an initial deposit when opening your account. Be prepared with cash, a check, or the routing and account numbers from an existing account to make your initial deposit. Some banks accept deposits from apps like PayPal, but you’ll want to have cash or a check ready just in case.
How to Start a Bank Account Application
The process of opening a bank account is simple. If going in person, a bank employee will walk you through the steps of opening your account. Online applications guide you through the same process at home.
Here are the steps to apply for a bank account:
1. Choose your desired bank and account type
Decide on the bank you want to open an account with, whether it’s an online bank or a brick-and-mortar bank. Make sure the bank has FDIC insurance, which protects consumers up to a certain amount (usually $250,000) in the event of a bank closure. Also, compare monthly fees and balance requirements (some banks have a minimum).
Then, choose the account option – savings, checking, or another account type – that best fits your personal needs. You can also ask your bank if they have any special options, like student bank accounts with lower fees.
2. Prepare the right documents
Be ready with all the appropriate documents needed to verify your identity. Bring a government-issued ID (such as a driver’s license or passport), your social security card, and proof of address (like a utility bill).
If you’re applying online, you’ll upload supporting documents to the application portal instead of presenting the documents in person. Make sure you have scanned or digital copies of your documentation.
3. Submit your application
Fill out and submit your application in person or online. This process usually only takes a few minutes. Depending on your bank’s requirements, you may have to wait a few minutes to a few days after submitting your application for your account to be approved and opened.
If you’re opening an account online and run into trouble, look for your bank’s customer service features. Online banks commonly offer 24/7 customer service for any questions you might have.
How to Fund Your Account
You’ll typically make your first deposit into your new bank account at the same time that you open it. If your bank requires a minimum deposit to open an account, be sure to ask what it is so you can have sufficient cash on hand.
You can fund your account in a few ways:
- If you go in person, you can provide a check or cash to start your account.
- If opening online, you can usually take a picture of a check to deposit, link to an existing account you want to pull the funds from, or connect to another service like PayPal that has funds in it.
- If you want to open an account at an online bank but only have cash to deposit, you’ll need to first open an account with a brick-and-mortar bank where you can deposit your physical cash. You’ll then be able to transfer your money to an online-only institution.
How to Use Your Bank Account
Keep track of your finances
You can use your bank account to help see all your expenses and savings in one place. If you were previously keeping track of your finances by hand, a bank account can expedite the process with automated summaries, reports, and a real-time look at your available balance.
Get paid faster and easier
Most employers offer direct deposit, which is only available if you have a bank account they can deposit your money into. Direct deposits allow you to access your paycheck funds more quickly and eliminate a trip to the bank to cash a physical check.
Make payments easier
Paying for goods and services is simpler with a bank account, as well. The days of mailing in a monthly payment are almost obsolete,” says Lamar Brabham, CEO of Noel Taylor Agency, a financial services firm in South Carolina.
Having a bank account also allows you to make automatic payments on most bills you owe, which can help you make sure you don’t miss payments. Consistently paying your bills on time can “help increase your credit score,” says Brabham, so anything that makes that easier is a good thing.
Apply for loans and credit
If you need to take out a loan, getting a bank account is the first step. An established banking history may increase your chances of qualifying for a loan, and having an existing relationship with the bank you’re taking out a loan from could help you get better rates. Lenders often provide slightly discounted rates to borrowers who set up autopay – a feature that can only be accessed with a bank account.
There are many reasons why opening a bank account could benefit you, and many options to choose from. Doing research on what features you want from a bank can help you narrow down your search. Once you’ve figured that out, the process for opening a bank account online or in person is relatively simple. Make sure you bring the correct documents and go from there.
Frequently Asked Questions (FAQ)
Can I open a bank account entirely online?
Yes, you can open a bank account online and save yourself a trip. You will need to provide your social security number, date of birth, and driver’s license number. To make the initial deposit, you’ll need to have a debit card or provide a routing and bank account number to another account from which you want to electronically transfer the money.
How do I open a bank account as a student?
Student bank accounts make great options for young adults who want the convenience of paying bills electronically but don’t want to be penalized for keeping less money in their accounts than someone in the middle of their career might. Student checking and savings accounts tend to have low or no monthly fees, smaller minimum account balances, and other perks like the ability to waive overdraft fees. You’ll need all the same information to open a student bank account as you would a regular bank account, except you’ll need to take a student ID or record of enrollment, such as a transcript or class schedule. You may also need to provide your university or college email address at the time of account opening.
How do I close an old bank account?
To close an old bank account, call or visit your bank and speak to someone who can assist you with your request. Decide if you want to cash out the money or simply use it until the account balance is zero. If you close your account online or over the phone, the bank may ask you for an address to which your final check can be mailed. Prior to closing your bank account, make sure to update your subscriptions and monthly bills with your new bill pay information to avoid late fees.