You’ve likely heard of a lot of these before, but have you thought about how do they fit into your current goals and how to maximize their benefits to better build your financial future?
Saving money is critical in ensuring your financial stability and security but it’s essential to have a plan so you can reach your financial goals. One way to do this is to have multiple savings accounts. Below are the five savings accounts that everyone should have to help you ensure a better financial future.
1. Emergency Fund Account
An emergency fund is an essential part of any financial plan. It’s a savings account that you can tap into when unexpected expenses arise, such as medical bills, car repairs, or job loss. Ideally, your emergency fund should have enough money to cover at least six months of living expenses and be very liquid, which means you can pull your money out without any penalties at any time.
You should keep your emergency fund in its own account, so you don’t lump it together with your regular savings account and it also makes it easier to track your progress toward your emergency fund goals.
When selecting an account for your emergency fund, look for an account with a high yield, no withdrawal penalties, and no minimum balance requirements. Some accounts even offer bonuses or better interest rates for the first few months, so be sure to research and take advantage of the best account offer.
2. Short-Term Savings Account
A short-term savings account is a separate account that you can use for smaller, short-term savings goals, like a vacation, a down payment on a car, or a new piece of furniture.
Like your emergency savings account, look for an account that is easily accessible and has no withdrawal penalties. You want to be able to access your money quickly if you need it. A high-yield account is also ideal for this type of savings goal.
3. Long-Term Savings Account
This could include saving for a down payment on a house, starting a business, or planning for retirement. The time frame for your long-term savings goal will vary, but it typically ranges from a few years to several decades.
Having liquidity in this case isn’t as critical as you won’t be needing your funds as quickly as you would with a short-term or emergency savings account. Therefore, when selecting an account for your long-term savings, look for one that offers a higher yield and has no fees. Accounts like CDs or money market accounts typically offer higher interest rates than traditional savings accounts but come with terms.
Take Save Market Savings as an example. Market Savings is a unique savings program that allows you to earn a high-yield return on your savings by investing in a diversified portfolio of commodities, stocks, and bonds, all while your initial deposit is safe and FDIC-insured.† With a Market Savings 1-year term, you can earn 8.96% APY* on your savings, which is almost double the APYs of the best high-yield savings accounts.
The Save Market Savings program is a great option for those who are looking for a higher yield on their savings without taking on a lot of risk. By investing in a diversified portfolio of commodities, stocks, and bonds, you can earn a higher return on your savings while still maintaining a level of safety and security.
4. Health Savings Account (HSA)
A health savings account (HSA) is a savings account that you can use to pay for medical expenses, like deductibles, copays, and other expenses, and it’s especially wise to have one if you have a chronic medical condition or anticipate needing medical care in the future. The money you contribute to an HSA is tax-deductible, and the interest earned is tax-free.
When selecting an HSA, look for an account that has no fees and a low minimum balance requirement. You may also want to consider an account that offers investment options, so your money can grow even more.
5. Education Savings Account
An education savings account is a separate account that you can use to save for your child’s education expenses. This could include tuition, books, and other school-related expenses. There are two main types of education savings accounts: a 529 plan and a Coverdell Education Savings Account (ESA), if applicable for you.
A 529 plan is a savings plan that is designed specifically for education expenses. It offers tax-free growth and tax-free withdrawals for qualified education expenses. There are no income restrictions for contributing to a 529 plan, and you can contribute up to the maximum limit set by the plan.
A Coverdell Education Savings Account (ESA) is a savings account that allows you to save for education expenses, including tuition, books, and other school-related expenses. The contributions you make to a Coverdell ESA are not tax-deductible, but the account grows tax-free, and you can withdraw the money tax-free for qualified education expenses. The account has a maximum contribution limit of $2,000 per year per child, and there are income limitations for contributing to a Coverdell ESA.