How Many Savings Accounts Should I Have?

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So exactly how many savings accounts should one have? 

At a minimum, you need at least one savings account, but ideally, you should have an account for each of your savings goals. That means for everything that you’re saving for—a house, a car, tuition—you should have a savings account for it. 

Why should you have multiple savings accounts?

Having multiple savings accounts is a practical way to manage your savings goals. It allows you to track your progress, keep your money organized, and reduce the chance of overspending.

In this post, I’ll share 4 savings accounts that I recommend that you should have regardless of what your savings goals are. I’ll also share other types of savings accounts that you can leverage to help you save.

Have you had trouble saving in the past? Check out these savings challenges that you can try to help you save.

Ok, let’s hop in!

4 savings accounts you should have right now

1. Short term emergency fund

The first type of savings account that you should have is a short-term emergency fund. This is an emergency fund that you can immediately access. It’s a small amount that is not your fully-funded emergency fund, which is about 6 to 12 months of your expenses in an account. 

It is $1,000 or less that you have set aside in case of an emergency where you need immediate cash. So you want to have an account with a local bank, perhaps where you have access to the money or you can at least transfer it to a checking account and be able to withdraw it easily in the event of an emergency. 

2. Fully-funded emergency fund

The second type of savings account that you should have is a fully-funded emergency fund. This is where you get into your 3-6 or ideally 6-12 months’ worth of expenses in an account. 

To calculate how much this is for you, take a look at how much it costs for your rent or your mortgage, food, electricity, and all other necessities per month. Multiply that by at least six. This is how much you should have in your emergency fund savings account. 

An easy way to make sure that you’re saving and putting money aside is to automate your savings. So you can do that through your employer or you can do it through your bank. 

3. Retirement savings

The third type of savings account that you need to have is retirement savings or otherwise known as a retirement investment account. 

If you are an employee, your employer typically offers this through a 401k or some other variation. Take advantage of this employer-sponsored retirement savings account and employer match (if possible). 

4. Sinking funds

The fourth type of savings account that you need to have is what I call sinking funds. This essentially means that you have a savings account for any type of major financial goal that you have. 

So if you’re saving for a car, if you’re saving for a house, if you’re saving for a baby, you can create separate savings accounts or sinking funds, where you put money aside every time you get paid. The whole point with these savings accounts or sinking funds to have a place to incrementally save your money until it’s time to spend it. 

8 Types of savings accounts to help you save

There’s practically a savings account that can help with any of your financial needs. Here are 8 that you can consider opening to help you save.

1. Traditional or Regular Savings Account

A traditional or regular savings account is designed for you to deposit money and not touch it for a period of time. This is where you put your money away so that it can grow and, ultimately, help you build wealth.

There are federal regulations on the usage of savings accounts so that they are used for their intended purpose. An example of the rules in place is the maximum number of transfers that you can make out of your savings account.

2. High-Yield Savings Account

A high-yield savings account is simply a traditional savings account that offers a much higher annual percentage yield (APY). Online banks typically offer higher interest rates, because they don’t carry the overhead and expenses of maintaining a brick and mortar branch.

So if you’re trying to figure out exactly where to save your money, I would definitely recommend that you check out online savings accounts, which will give you a higher annual percentage yield, meaning that you will earn more interest on your money that is sitting in the account.

3. Money Market Accounts

Money market accounts or MMAs are very similar to high yield savings accounts. However, they tend to earn more interest and have some features of a traditional checking account– such as checks and an ATM card. This makes funds more readily available, although you may incur some transaction limits.

Contrary to savings accounts, an MMA may require a higher minimum balance.

3. Certificate of Deposit Account

Certificate of Deposit (CD) is an investment product offered through banks and credit unions. Essentially, you agree to deposit X amount of dollars into an account and not touch it for an extended period of time. In return, they’ll pay you interest for the money at a rate higher than a savings account or MMA.

If you choose to withdraw funds before then, you’ll be hit with penalties. So think before you act!

CDs will require a minimum deposit, so check with your bank or credit union to explore options. There are also online options as well.

4. Retirement Savings Accounts 

Your retirement savings account is another way that your money is working for you. It’s allowing your money to grow through diversified mutual funds, bonds, stocks, etc. As the market improves, so will your earnings.

401k, 403b, 457b

The 401k/403b/457b are three of the five employer-sponsored retirement plans available to date. In most cases, the employer matches your contribution; however, there are requirements on what age funds must be deducted. 

5. Individual Retirement Accounts (IRAs)

If you’re self-employed, a stay-at-home spouse, or if you’ve maxed out your 401(k), you can arrange your own retirement account with a bank, brokerage firm, or other financial institution that holds investments. 

There are currently two types of IRAs that you can choose from— either Roth or Traditional. The difference is how and when you will be taxed on the funds in the account.

6. HSA

An HSA is a tax-incentivized account that allows you to deposit funds tax-free while also reducing your taxable income. You are able to use this account exclusively for health-related expenses.

Each year, you can max out the savings limit on this account and allow funds to roll over to the next calendar year. Ultimately, the more you can put in your HSA (to the allowable yearly limit), the more money you’ll have saved to pay for qualified medical expenses, and the less you may have to pay in taxes.

7. 529 Account

A 529 Plan is a tax-advantaged investment account that can be used to save money for your child’s education. 

Tax-advantaged simply means that you will not pay income taxes on the earnings as long as they stay in the account. Additionally, if funds are not used for educational purposes upon withdrawal, you will be taxed.

There are no income limits on who can contribute to a 529. However, plans do vary by state. This state-by-state guide to 529 Plans provides more information based on your state.

8. ESA Account

Another option to save for your child’s education is with an ESA. Similar to the 529 Plan, it is a tax-advantaged investment account that you can use to save for education. 

However, contrary to the 529 plan, there are income restrictions that limit who can use the plan. Additionally, funds must be used by age 30 (different from the 529) and can be used for any level of education, not just college.

How to choose a savings account

Before opening a savings account, it is important to do your research. You want to make sure that the account matches your financial needs so that you can reach your savings goals.

There are a few things that you should consider when opening a savings account.

1. Ease of opening and accessing account

Everything is about ease and convenience these days. Opening a bank account is no different.

Would it surprise you to know that I haven’t been inside of an actual bank in over 4 years? 

With everything at the touch of our fingertips, I find no need to go into a brick-and-mortar bank for my transactions. That’s why I prefer a savings account that I can open and access without the hassle of having to find time to go to a branch.

When considering which savings account to use, I recommend considering online savings accounts for their sheer ease and convenience. Online banking gives you the option of being able to access your accounts anywhere and typically comes with 24/7 support via phone or chat.

Online banks also have the advantage of offering higher interest rates, because they don’t carry the overhead and expenses of maintaining a brick and mortar branch.

If you’re looking for a way to save and earn your money, consider online banking for your savings account.

2. Minimum balance required & fees

I’m all about saving the coins, especially when it comes to fees. So, when considering a savings account, the minimum balance amount and associated fees is of utmost importance.

Some banks access fees for your account being below a specific balance. This is important if you are using your savings account to stash for a trip or to make big purchases, where funds will ultimately be coming out.

If you know that your account may fall under that minimum balance, it’s wise to avoid it and find a bank that doesn’t access fees. There are a few banks that offer minimal to no balance requirements. 

3. Annual Percentage Yield (APY)

Admittedly, APY may be the single most deciding factor when I’m accessing a potential savings account. Why? Because it’s free money!

An account’s APY is the amount of interest that you will receive each year on the money held in your account. For example, if your account’s APY is 2.2%, that means you’ll receive $2.20 for every $100 in your account that year. 

So imagine how much interest you can gain from having 6-12 months of an emergency fund in the right account!

Final thoughts on savings accounts

Having money set aside to reach your financial goals and emergencies is so important. You can have as many or a little as you need for your financial situation. I recommend checking out these savings challenges that you can try to help you save.

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