All the Accounts
Different Types of Savings Need Different Kinds of Accounts
Breaking Down the Various Accounts You Might Need — Depending on What You’re Saving For and When You’ll Need the Money
This might sound obvious — but different money should be held in different places. You need daily access to the money you use for your monthly bills, but you probably won’t access your retirement investments for decades. Right?
Checking Account: Money You’ll Spend This Month
This is where you want your day to day money — the money you’ll use to pay your bills and expenses throughout the month. I feel confident that most of us have a checking account, because you need somewhere to deposit your paycheck ;)
Savings Account Tied to Your Normal Bank: Savings You Might Need Quickly
I like to use the savings account at my normal bank as sort of an “oh crap” account — overflow for those months where a little too much happens and your spending is just a little more than expected.
For example, this month I’ve already gone to the dentist, bought new glasses, paid a parking ticket, and ordered bulk spices for the year. These aren’t “emergencies,” but sometimes it just all adds up to a little more than you planned for in the month.
It’s linked to your checking account, so you can transfer any needed overflow money instantly. I personally keep about $500 in this savings account, and only add to it when it needs to be replenished. I wouldn’t keep too much money here, because it’s not earning you any interest. The big time savings should be in a high interest savings account, which we’re talking about next!
High Yield Savings / Money Market Account: Savings You’ll Need Within the Next Couple Years AND Your Emergency Fund
Online High Yield Savings Accounts and Money Market Accounts earn you WAY more interest than your regular savings account. All that extra interest really adds up over time, so don’t sleep on this.
But here’s the drawback: it can take several days for a transfer to be completed, because it’s at a totally different bank.
That’s not an issue for most things. If you’re let go from your job, you’re not going to need your emergency savings today. And if you’re planning a vacation and you need to transfer out of your travel sinking fund, you’ll know in advance. But keep money you’ll faster access to (i.e. faster than a few business days) in your regular savings account.
Certificate of Deposit (C.D.) - Savings You’ll Need on a Specific Timeline
C.D.s can be a great way to earn more interest than a High Yield Savings Account, but without the volatility of the stock market.
But here’s the catch: you are locked in for the duration of the agreement. Say you’re signing up for a 24 Month CD at 2% APR…you can’t take the money out before then without paying penalties.
So while this money isn’t suitable for emergency savings — which you want to be able access when you need it — it’s great for something with a predictable timeline. If you know you’re getting married in 2 years or plan to buy a condo in 3, C.D.s would be a great place to keep the savings in the meantime.
Investment Accounts — Long-Term Growth
Investment accounts (including your retirement, Robinhood investments, or apps like Acorns) are subject to the ups and downs of the stock market. The good news is that it historically always goes up over time and is a great way to grow wealth! The bad news is that its fluctuations can’t be predicted — the stock market’s timelines might not match your own.
This means that you don’t want to invest any money that you might need within the next 3-5ish years (there’s not a specific rule, but that’s a general guideline!). Can you imagine if you lost your job in March 2020, and your emergency fund was invested while the stock market was crashing? No thank you!!!
Investing is hugely important for long-term planning — but keep the money you’ll need soon safe.
Okay…but what’s next?
If you want help figuring out your types of savings and where you should hold your money, let’s chat! Schedule a call with Beyond Money, and let’s get started!