In this article, I’ll offer a step-by-step guide to opening several different types of bank accounts, including tips and advice from money expert Clark Howard.
How to Open a Bank Account in 6 Easy Steps
1. Select Your Bank Account Type
Different types of bank accounts help you achieve different goals. If you don't have a bank account, your first options to consider are a checking account and a savings account.
Checking Account
A checking account is the most basic type of bank account. Because they offer easy, day-to-day access to your money, they are also the most common.
On top of giving you a safe place to put your money, checking accounts are primarily used for making payments (bills, daily expenses), receiving direct deposits and withdrawing cash from ATMs.
Checking accounts typically come with debit cards and checkbooks.
Savings Account
A savings account is designed to hold money you don’t plan to spend immediately. These accounts earn interest, but rates have been low for several years.
Building an emergency fund is one way to use a savings account. You'll probably find better interest rates at credit unions or online banks rather than at traditional banks.
Money Market Account
A money market account sometimes earns more interest than a savings account. It still gives you easy access to your cash via check-writing and debit card privileges. Money market accounts typically require you to maintain a minimum balance and sometimes limit the number of transactions you can make each month.
Certificate of Deposit (CD)
A CD is a low-risk investment tool called a time deposit. You agree to leave your money in the account for a set time period, and the bank agrees to a fixed interest rate that is often higher than other types of accounts.
2. Choose the Right Bank for Your Account
You can open a bank account at many different institutions. To narrow your choices, you should decide from one of the three primary bank categories: traditional (brick and mortar) bank, online bank or credit union.
| Consumer Bank Type | Pros | Cons |
|---|---|---|
| Traditional Bank | -Large network of physical branches. -Abundance of financial products and services. | -Higher fees. -Lower interest rates. -Business model, scale can prioritize profits over customers. |
| Online Bank | -Few or zero branches leads to a cost savings. -Customers benefit via lower fees and higher interest rates. | -Often no option for in-person help. -Can be harder to deposit cash. -Fewer one-stop shops for every financial product. |
| Credit Union | -Nonprofit and member-owned. -Lower fees. -Better interest rates (savings and loans). | -Fewer branches and product offerings. -Only services a specific community. -Less-developed online services. |
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Which Kinds of Banks Does Clark Use?
Clark thinks that, for most people, the perceived convenience of large multi-state or national banks isn't worth what he calls their "ultra-high cost." On a recent podcast, he advised his listeners to go where the costs are low.
"Unless you have a special situation that requires that you routinely go in a branch, they serve no purpose in your life," Clark said.
"I haven't had a traditional bank account in decades. I do my banking with one of the discount brokers. And I also have a credit union account. I haven't paid a fee for banking in so long I can't remember."
Discount brokers like Charles Schwab also offer free online checking accounts that mirror the characteristics of online banks, but some have physical branches.
Team Clark can guide you toward some of the best online banks.
Things to Consider When Comparing Bank Account Options
Opening a bank account is simple. But it’s important to research your options and find the one that fits your needs. No one likes to pay unnecessary fees or pay for services they don’t use.
Here are a few questions to ask yourself:
- Is there a required minimum balance? Checking accounts typically don't charge if you keep your balance above $0. But find out if the option you're considering will charge you if you fail to maintain a certain balance. Consider how much money you'll keep in the account.
- What fees are associated with the account? Checking accounts may include costs like overdraft fees and statement fees (for printing and mailing monthly statements). Make sure you understand all the potential fees.
- What are the institution's direct deposit and mobile deposit options? You used to have to visit a branch to make deposits. That's no longer the case. Nowadays you can deposit to an ATM or through photos on your cell phone. You can also sign up for direct deposit, which lets your employer deposit your paycheck directly into your account.
- Where are the ATM and branch locations? As Clark said, you probably don't need branches anymore. But if you need cash often, you'll want to find the bank's ATMs that are convenient for you. And if you travel, you should check out potential ATM fees outside your bank's footprint.
- What about bonuses for opening an account? Some banks offer bonuses and incentives to open an account that can total hundreds of dollars. Sometimes they come with stipulations like direct deposit minimums in the first few months.
3. Gather the Required Documentation
You won’t need to provide your blood type, birth certificate or first-born to open a bank account. However, your bank will want to verify your identity. In some cases, your bank will ask you to send a copy of your driver’s license and/or sign a signature card.
In addition to your name, date of birth and home address, here is the information you want to gather before applying for a new account:
- Social Security Number or Individual Taxpayer Identification Number (ITIN)
- Driver's License or Government-Issued ID
- Previous Address (if you've moved within two years)
- Phone Number/Email Address
If you’re opening a joint account, the bank will expect everyone who will have access to the account to provide the above information. If you’re under 18, you’ll need a parent or custodian who agrees to oversee and access your account. The bank will need their information as well, and they need to be with you if you apply for the account in person.
Most financial institutions require a minimum deposit when you open a new bank account. If you’re going to transfer that money from another bank, you’ll probably need the account number and routing number from that bank.
4. Complete the Application Process
Opening a bank account is a relatively fast, simple process. You can go to the bank or credit union you've chosen, but many of their websites offer a way to apply online. And of course, that's usually the only way you can open an account with an online bank.
You can expect to fill out an application for a new bank account. Usually the application is simpler than what you fill out to apply for a job, a loan or an apartment.
If you opt for the convenience of an online application, your bank will take you through a series of prompts asking you what type of account you want and asking for the required documentation to verify your identity. You’ll type most or all of the information into text fields inside of an online form.
For example, I searched “Charles Schwab open checking account,” and within two clicks, I was filling out an application. Here’s a taste of what you may encounter:
I filled out checking account applications for several banks online to get an idea of the time commitment. I had all the required documentation on hand when I started, and I was able to breeze through each of the applications in about five minutes.
When you get toward the end of the process, you’ll be asked to click a button or box that says “I Agree” (or something similar): Doing so will mean you agree with the financial institution’s terms and conditions. It’s a good idea to take the time to read the fine print before you click that button since it often includes details about potential fees.
Your bank should provide Federal Deposit Insurance Corporation (FDIC) coverage or National Credit Union Share Insurance Fund (NCUSIF) coverage if it’s a credit union. This insures your money up to a certain dollar figure (the standard amount for FDIC is $250,000 per depositor, per bank).
5. Fund Your Bank Account
You probably will need to make a minimum deposit to open your new bank account. This can be as low as $1. Typically, checking accounts have lower minimum deposits than savings accounts, money market accounts and CDs.
There are several ways to fund your new bank account:
- Cash
- Debit Card
- Wire Transfer
- Check
- Money Order
- Direct Deposit
Some banks use test deposits to further verify your identity. And there could be a holding period on your initial deposit if you make it with a check, for example.
If you have an existing bank account and you’re moving to a new bank, you may want to close your old account. Most of the time you can do that on the phone.
If you do close an old bank account, remember to update your direct deposit information with your employer or any other entity that makes deposits to that account. Keep the account open until you know that all outstanding transactions have cleared. You’ll also want to switch any automated payments to your new account and update your bank account information in mobile payment apps.
You can also designate a beneficiary for your account. The beneficiary would receive the money in your account if you die. If you don't name a beneficiary, the executor of your estate would divide any funds in your bank account according to your will.
6. Start Using Your New Bank Account
If you followed the first five steps, you should now have a new bank account in your name. It will take anywhere from minutes to days before your account is fully operational. Here are some tips on what to do next:
- Watch your mail. You can probably expect to get a debit card and checks if you open a checking account.
- Set up direct deposit with your employer. A checking account is an ideal place to get your paycheck.
- Download your bank's app. Your bank probably has an app that will help you do things like make deposits remotely and check your balance.
- Monitor your transactions. You will be able to see a record of your transactions online. Check them periodically.
Final Thoughts
As long as you use a bank or credit union that insures your money, opening a bank account is a relatively low-risk decision.
However, it always pays to compare options, whether you’re buying a stick of gum or a house, and bank accounts are no exception. Clark notes that banks with a large number of branches, recognizable brand names and big marketing budgets can charge a premium.
Unless your circumstances are unusual, follow Clark’s advice and avoid paying unnecessary fees. Most people rarely need to physically enter a bank in 2020, and the idea that you need a bunch of branch locations usually isn’t true.
Clark says you should open your bank account at a place where the costs are low and you’re a valued customer.
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