The process of opening a savings account is pretty straightforward. Below are the steps you need to follow when opening a savings account:
Step 1: Decide On Account Type
The first thing you need to do is to determine the kind of savings account that is most suitable for you. Do you need a regular savings account, a fixed deposit account, or a target savings account? This decision should be based on your savings goals.
Step 2: Compare Institutions
Once you know the type of savings account you want to open, the next step is to compare the different banks and financial institutions offering this type of savings account.
Your comparison should be based on the factors we covered earlier, such as interest rates, minimum initial deposits and minimum interest earning balances, withdrawal limits, account and transaction fees, convenience, and so on.
Step 3: Prepare Your Personal Documents
The personal documents required to open a savings account will vary from one financial institution to the other. However, most will require you to provide your national identification card and your KRA pin. You can confirm the required documents with your chosen financial institution.
Step 4: Open And Fund Your Savings Account
Armed with the requisite personal documents, you can now go ahead and open your savings account by either visiting a bank branch, or doing it online if your chosen financial institution allows that.
Once your account has been set up, you can make your first deposit into the account and start saving.
Benefits of Savings Accounts
Having a saving culture – regardless of the reason behind saving or how you save – is very important. Saving gives you greater financial security, gives you something to fall back on in the event of an emergency, and provides you with funds that you can invest.
That said, saving your money in a savings account offers several benefits over other forms of saving. Here are some of the benefits of savings accounts:
Keep Your Money Safe
Saving your money in cash at home puts your money at huge risk. In case of something like a burglary or a fire, you could easily lose all your savings. When you keep your money in a savings account, however, you are guaranteed of the safety of your funds.
Even if something were to happen to the financial institution where you have your savings account, the savings are insured by the Kenya Deposit Insurance Corporation (KDIC). You can read more about this here>> How customer bank deposits are protected by law.
What’s more, unlike keeping your money in the form of financial instruments like money market funds, you cannot lose the principal amount deposited in a savings account. This means that your money is totally safe in a savings account.
Grow Your Money
The greatest benefit of savings accounts is that they pay interest on the funds in your account. Granted, the interest rates are usually not very high, so don’t expect to make enough money to live off from the interest earned on your savings. Still, any interest earned is important, because it is money you did not have.
For instance, if you kept Ksh1 million in a current account or in a safe in your bedroom for a year, you’ll still have a million shillings (without accounting for inflation).
However, if you kept the same Ksh1 million in a savings account, you’d have an extra Ksh10,000 – Ksh100,000, depending on the interest rates offered by your savings account. This is money you earned doing absolutely nothing over the course of a year.
Achieve Your Financial Goals
Another great advantage of savings accounts is that they make it easier for you to achieve your financial goals. When you have your money easily accessible, there is a high chance that you might end up spending it on things you had not budgeted for.
For instance, imagine you’re hanging out with friends on a weekend, and a random “Vasha” plan comes up. When you have the money easily accessible to you, it becomes very easy to go along with the plan, even if this is something you had not budgeted for and could derail you from your financial goals.
Savings accounts keep such temptations at bay by making your money harder to access, either through withdrawal limits, or by the inconvenience of having to make withdrawals in person for accounts with such limitations.
By making your money harder to access, savings accounts make it easier for you to save and achieve your financial goals.
In addition, you can automate your savings by setting up automatic deposits from your current or salary account into your savings account. This way, saving becomes easier, because it is not a conscious decision you have to make every month – which can be difficult for most people.
Liquidity
While many savings accounts make it harder for you to access your money compared to current accounts or keeping your money in cash, they are still relatively liquid. If you want your money quickly, you can easily access it within a short time, provided you are within your withdrawal limits.
However, this only works for regular savings accounts. For target savings accounts and fixed deposits, you’ll face penalties for withdrawing your funds prematurely.
Wrapping Up
If you’ve been thinking about putting some money aside, either to fund a major purchase, to accumulate some money that you can invest, or even to give you some security in case of an emergency, you’ll never go wrong with a savings account.
Source: All You Need to Know About Savings Accounts in Kenya – GUIDE (money254.co.ke)
