Savings accounts are a great way to save money and reach your financial goals. There are many different types of savings accounts available, including high-yield savings accounts, traditional savings accounts, and even certificates of deposit. Each account has its own set of features, so it's important to understand which one would work best for your individual needs.
Doing research, shopping around and, when it comes to investing, speaking with a Financial Advisor, can help you find the one that meets your needs and offers the best interest rate.
Why are savings accounts important?
Savings accounts are important because they provide a safe place to store money and grow it through interest. They offer a secure way to save for long-term goals like retiring, medium-term goals like buying a car or a house, or for short-term needs like an emergency fund.
Having a savings account can also help you avoid debt, since you can draw from it to cover unexpected expenses rather than having to put them on a credit card.
Savings accounts can help you build financial security and give you peace of mind knowing that you have a cushion in case of an emergency.
What are short-term savings?
Short-term savings refers to money that you set aside for immediate or near-term goals. This type of savings is usually for goals within a few months or years, such as a down payment on a car or a vacation. Short-term savings are generally kept in relatively liquid accounts, such as a traditional savings account, so that the money can be accessed quickly and easily when needed.
What are the best accounts for short-term savings?
When it comes to short-term savings, it's important to find an account that provides you with maximum flexibility. High-yield savings accounts are usually a great option, as they offer great rates and easy access to your money. Banks like Ally {my favorite!} and Alliant Credit Union offer great rates and don't require a large initial deposit. Additionally, these online banks offer great rates and easy access to your money, as well. Ultimately, it's important to compare the terms and conditions of each account to ensure that you're getting the best deal for your situation.
What is a traditional savings account?
A traditional savings account is a type of bank account that allows you to save money and earn interest {although interest rates on these accounts are quite minimal} on your balance over time. It is one of the safest ways to save money, as the funds are insured by the FDIC. Traditional savings accounts typically have low interest rates, but they are a great way to save money and build financial security.
Why is a traditional savings account important?
A traditional savings account is important because it is a safe and secure way to save and store money. It is FDIC-insured, which means that your money is protected up to $250,000 in case of bank failure. Additionally, it provides a secure, low-risk option for saving money and earning interest over time. Moreover, it helps you develop a healthy savings habit and provides you with access to your funds when you need them.
How does Budget BFF use a traditional savings account?
Here at Budget BFF, I use my traditional savings account in 2 ways:
as a holding tank to store funds that will be moved to a High-Yield Savings Account
to hold one month worth of income in the event of an emergency
If you're just getting started building an emergency fund and one month worth of income feels like a lot, I recommend saving an amount that will cover your insurance deductible, which is usually $500-$1,000.
That way, you are at least covered if something happens!
What is a High-Yield Savings Account (HYSA)?
A high-yield savings account is a type of savings account that offers a higher interest rate than a traditional savings account. Sometimes, though, these accounts require a minimum balance to be maintained and have other restrictions in order to qualify for the higher rate. High-yield savings accounts are a great way to maximize your savings and help your money grow faster.
Why are High-Yield Savings Accounts important?
A high-yield savings account is important because it helps you earn higher interest rates on your savings than a traditional savings account. This can help you make the most of your hard-earned money, allowing your savings to grow more quickly over time. High-yield accounts also typically come with fewer fees and flexible features, such as the ability to transfer funds quickly and easily. With greater interest rates and fewer fees, a high-yield savings account can be a great choice for anyone looking to maximize their savings.
How does Budget BFF use High-Yield Savings Accounts?
Using a High-Yield Savings Account is my favorite way to save for specific goals, and I love Ally Bank for this.
With Ally Bank, you can set up one savings account (with an interest rate at 3.3% as of 1/28/2023), but within that account, you can have up to 10 different savings goals - called "buckets".
I have buckets for vacations, pets, taxes and many more, and I love the added motivation of seeing my buckets fill up!
This is also where I stick my longer-term (3-6 months worth of income) emergency fund.
What are medium-term savings?
Medium-term savings are funds that are saved for a period of time that is longer than short-term savings, but not as long as long-term savings. Generally, medium-term savings are for periods of 3-5 or even 10 years. These funds are often used for larger purchases such as a car, big vacation, or home renovation. Medium-term savings are typically invested in more secure investments with lower yields, such as certificates of deposit or money markets.
What are the best accounts for medium-term savings?
When it comes to medium-term savings, there are a variety of accounts that may be right for you. Before choosing an account, it’s important to consider the fees, interest rates and accessibility that the account offers. Some popular accounts include money market accounts and certificates of deposit. Money market accounts often offer higher interest rates in exchange for higher minimum deposits. Certificates of Deposit may offer the highest interest rates, but require you to keep the money in the account for a specified period of time. Ultimately, the best account for your medium-term savings depends on your individual needs and preferences.
What is a Money Market account?
A money market account is a type of savings account that typically offers a higher interest rate than a traditional savings account. Money market accounts also often have higher minimum balance requirements and limited transaction capabilities compared to other types of accounts. Money market accounts are a great way to save money while earning more interest than a traditional savings account.
Why are Money Market accounts important?
A money market account is an important financial tool because it provides a higher interest rate than a traditional savings account and offers more flexibility with withdrawals and deposits. Money market accounts also provide the additional benefit of FDIC insurance coverage, meaning your deposits are insured up to a certain amount. Money market accounts allow you to easily access your funds while still earning interest, so you can use the money when you need it while continuing to grow your savings.
What is a Certificate of Deposit?
A Certificate of Deposit (CD) is a financial instrument issued by banks or credit unions that allows you to deposit money for a set amount of time in exchange for a fixed rate of interest. CDs are a low-risk investment option that are FDIC-insured, meaning that your principal deposit is protected up to $250,000. CDs typically have maturities ranging from a few months to several years, and the interest rate you receive is usually higher than other deposit accounts.
Why are Certificates of Deposit important?
Certificates of deposit (CDs) are an important savings tool because they offer a guaranteed, fixed rate of return on your deposits. CDs are a low-risk way of earning money on your savings and can help you reach your financial goals faster. CDs are an excellent choice for savers who are looking for a reliable, low-risk investment.
What are long-term savings?
Long-term savings is money set aside for future use, such as retirement. This is when it's time to look into investment accounts. The idea is that the money is kept in the account for a period of years and not touched until it is needed. The longer the money is left in the account, the more it will grow as it accumulates interest and then compounds over time. Setting aside money for long-term savings can be a great way to build financial security for the future.
What are the best accounts for long-term savings?
Investment accounts can offer a higher return on your investments over a long period of time and can be a great option for long-term savings. Investment accounts are not a great idea for short- or medium-term savings, as the market is too volatile. With investment accounts, time is your BFF.
Types of Investment Accounts
There are many types of investment accounts that you can choose from, depending on your needs and goals. Some of the most common investment accounts include: Traditional IRAs, Roth IRAs, 401(k)s, SEP IRAs, Mutual Funds, Stocks, Bonds and ETFs. Each of these has their own advantages and disadvantages, so it’s important to do your research, understand your own financial goals and speak with a Financial Advisor before investing.
5 Ways to Build Up Your Savings Account
Make a budget: Start by making a budget and sticking to it. This will give you a better perspective on where your money is going and where you can cut back.
Set up automatic transfers: Set up automatic transfers from your checking account to your savings account. This way you won’t forget to save and you’ll be building up your savings account without you having to think about it.
Look for extra ways to make money: Consider taking on extra jobs or side hustles to increase your income. You can then put the extra money into your savings account.
Pay yourself first: Make sure to prioritize putting money into your savings account each month. This will help you build up your savings quickly and keep it growing.
Use online tools: Take advantage of online tools to help you save. Tools like the Budget BFF Simple Spending Plan make it easy to see exactly where your money is going every month and provides a place to set savings goals and then track them.
What is your favorite type of savings account? Let me know in the comments below!
If you're ready to start saving and want to track your growth each week, head over to the Budget BFF Vault and sign up for FREE to access the Weekly Income and Savings Tracker printable!
Happy Budgeting,
Caitlin :)
