Your main choices: traditional banks, credit unions, and online banks

You can open a savings account at three types of places: a brick-and-mortar bank with physical branches, a credit union (a member-owned financial institution), or an online-only bank. Each has different costs, convenience levels, and features. The right choice depends on whether you value in-person help, low fees, higher interest rates, or a combination of these.

All three types of accounts are insured the same way. The FDIC (Federal Deposit Insurance Corporation) protects money in traditional banks and online banks up to $250,000 per account holder. Credit unions are protected by the NCUA (National Credit Union Administration) with the same $250,000 limit. This means your money is safe regardless of where you open the account.

Key Takeaways

  • Traditional banks offer in-person service and ATM networks but often charge monthly fees unless you maintain a minimum balance.
  • Credit unions typically charge lower fees and pay higher interest rates, but you must be a member and may have fewer ATM locations.
  • Online banks usually have no monthly fees and pay the highest interest rates, but you cannot deposit cash in person or speak to someone face-to-face.
  • You can compare specific accounts by looking at monthly fees, minimum balance requirements, interest rates, and whether you can access your money easily.
  • Your choice does not affect how safe your money is — all three types of accounts are federally insured.

Traditional banks: branches, ATMs, and higher fees

A traditional bank is what most people picture: a building with tellers, a drive-through window, and a network of ATMs. Banks like Chase, Bank of America, Wells Fargo, and regional banks in your area fall into this category. The main advantage is convenience — you can walk in to deposit cash, speak to someone about your account, and use their ATMs without paying a fee.

The trade-off is cost. Most traditional banks charge a monthly maintenance fee (often $5 to $15 per month) unless you meet conditions like keeping a minimum balance, setting up direct deposit, or maintaining a checking account with them. Over a year, these fees add up. A $10 monthly fee costs $120 annually, which cuts into any interest you earn on your savings.

Interest rates at traditional banks are typically lower than what you will find at credit unions or online banks. As of now, many traditional banks pay less than 0.5% annual interest on savings accounts, though this varies by bank and changes over time. If building savings through interest is important to you, this matters.

Credit unions: lower fees and better rates for members

A credit union is owned by its members rather than shareholders. You must join to open an account, but membership is often free or costs a small one-time fee (typically $5 to $25). Credit unions are regulated like banks but operate differently — profits go back to members through lower fees and higher interest rates.

Many credit unions charge no monthly maintenance fee on savings accounts, or the fee is waived if you keep a small balance (sometimes as little as $25). Interest rates are often higher than traditional banks — some credit unions currently pay 4% to 5% or more on savings accounts, though rates vary widely by credit union and change frequently. This means your money grows faster.

The limitation is access. Credit unions have fewer branches and ATM networks than large banks. If you live in a rural area or travel frequently, you may find fewer locations to use. However, many credit unions belong to shared branching networks or surcharge-free ATM networks, which expand where you can withdraw money without paying a fee. Before joining, check whether the credit union's network covers the areas where you live and work.

To find a credit union you can join, visit CO-OP (co-opsharedbranch.org) or Allpoint (allpointnetwork.com) to search by location. You can also search by employer, school, or community affiliation — many credit unions limit membership to people who work for certain employers or live in certain counties.

Online banks: highest rates, lowest fees, no branches

An online bank exists only on the internet. Banks like Ally, Marcus, Discover, and Wealthfront offer savings accounts with no physical branches. You open an account on their website or app, manage it entirely online, and never speak to a person unless you call customer service.

Online banks typically have no monthly fees and no minimum balance requirements. Interest rates are usually the highest available — many online banks currently pay 4% to 5% or higher on savings accounts. Because they have no branches to maintain, they pass the savings to customers through better rates and lower costs.

The main drawback is that you cannot deposit cash in person. If you receive cash and want to deposit it, you must transfer it through another bank account or use a third-party service, which may take a few days. You also cannot walk into a branch to ask questions — all support is by phone, email, or chat. For people comfortable managing money online and who rarely deposit cash, this is not a problem. For others, it is a significant limitation.

How to compare accounts before opening one

Before opening a savings account anywhere, look at four things: monthly fees, minimum balance requirements, interest rate, and access to your money.

Monthly fees: Check whether the account charges a monthly maintenance fee and what conditions waive it. Some accounts have no fee at all. Others waive the fee if you keep a certain balance, set up direct deposit, or maintain another account at the same institution.

Minimum balance: Some accounts require you to keep a minimum amount of money in the account at all times. If your balance drops below that threshold, you may be charged a fee or the account may be closed. Online banks and many credit unions have no minimum. Traditional banks often require $100 to $500.

Interest rate: This is the percentage of your balance the bank pays you each year. Higher is better. Rates change frequently, so check the current rate before opening the account, not the rate advertised last month. The rate is usually listed as APY (Annual Percentage Yield), which accounts for how often interest is added to your account.

Access: Can you deposit cash? Can you withdraw money when ready? Are there ATMs near you? Do you need to speak to someone in person sometimes? Be honest about what you actually need, not what sounds convenient in theory.

What documents you will need to open an account

Most banks and credit unions require the same documents when you open a savings account. You will need a government-issued photo ID (a driver's license, passport, or state ID card), your Social Security number, and proof of your current address. Proof of address can be a utility bill, lease, mortgage statement, or bank statement dated within the last 60 days.

Some institutions may ask for additional information, such as your employment status or income, but this is less common for a basic savings account. If you are opening an account online, you will upload photos of your documents or answer security questions to verify your identity.

If you do not have a Social Security number, some banks and credit unions will open an account using an ITIN (Individual Taxpayer Identification Number) instead. Call ahead to confirm before visiting or explore online.

Getting started: next steps after choosing where to open

Once you have decided where to open your account, you have two options: visit in person or explore online. In-person is faster if you have all your documents with you — you can walk out with an account number the same day. Online takes a few days because the bank needs to verify your identity, but you can do it from home.

After your account opens, you will receive a debit card (if the bank offers one for savings accounts) and online login information. Set up online banking right away so you can check your balance, transfer money, and set up automatic deposits. Many employers allow you to direct deposit your paycheck into a savings account, which is the easiest way to move money in regularly.

Keep your account agreement and fee schedule. Banks and credit unions can change fees and terms, so review your account information once a year to make sure you are still getting a good deal.

Frequently Asked Questions

Can I open a savings account online if I have never had a bank account before?

Yes. Online banks do not require you to have previous banking history. You will need a government ID, Social Security number, and proof of address. The verification process is the same whether you are a first-time customer or returning to banking after a gap.

What is the difference between a savings account and a checking account?

A savings account is designed for money you want to keep and grow. A checking account is for money you use regularly to pay bills and make purchases. Most people have both. Savings accounts typically pay interest; checking accounts usually do not. You can open a savings account without a checking account at the same institution.

Do I need to keep a certain amount of money in my savings account?

It depends on the account. Many online banks and credit unions have no minimum balance. Traditional banks often require $100 to $500 to avoid a monthly fee. Check the account terms before opening. If you cannot meet the minimum, choose an account with no minimum requirement.

Can I move my money if I change my mind about where I opened my account?

Yes. You can transfer money from one savings account to another at any time. The transfer usually takes one to three business days. You can close the old account once the money is moved. There is no penalty for switching banks or credit unions.

What happens to my money if the bank fails?

Your money is protected up to $250,000 by the FDIC (if it is a bank) or NCUA (if it is a credit union). If the institution fails, the insurance agency takes over and makes sure you get your money back. This protection is automatic — you do not need to do anything.