You might be asking yourself how many savings account you need to save your money more efficiently.
Savings accounts are one of the best ways to save extra money and have funds for your financial goals.
It might not be as convenient as saving your extra cash on an envelope or piggy bank.
But unlike them, your savings account will keep your money safe, and it can contribute to economic growth.
There’s no really required number of savings accounts, as long as you achieve financial security.
However, if you have separate goals for your money, you might need additional accounts.
In this column, we’ll talk about 6 savings account types and the pros and cons of having multiple accounts for your savings.
6 Types of Savings Accounts
Before deciding how many you need, identify the type of savings account to help you fulfill your savings goals.
Here are the 6 types you can consider, along with their advantages and disadvantages.
Traditional or Regular Savings Account
Banks and credit unions usually offer traditional savings account.
Unlike other financial accounts, this one has low minimum balance requirements.
Plus, you can save your cash and have funds for your vacation funds or plans while earning from the interest rates.
Opening a regular savings account is more convenient than other types of accounts.
You can visit a branch to deposit your cash or for other transactions.
Besides that, some banks also allow you to create online accounts and use mobile banking.
Some even have insurance from the Federal Deposit Insurance Corporation (FDIC) and can insure up to $250,000 per account holder.
However, if you use the monthly remaining balance, it might cancel the interest.
In addition, the rates are low compared to other types.
Money Market Account
If you are looking for a savings account that has the features of both traditional savings and checking accounts, the money market account might be what you need.
You can withdraw your funds through a debit or ATM card or write checks for your payments with this account.
Plus, you can access it by going to a branch or using online banking.
Compared to a regular savings account, a money market account has higher interest rates.
But you’ll need a higher deposit to earn higher rates.
The minimum deposit will also be costlier than the traditional one. Lastly, the bank can generate fees if you withdraw more than six times in a month.
High-Yield Savings Account
For earning higher interest rates than a regular savings account while saving your funds, a high-yield savings account is another option you have.
If you find online banking more convenient than visiting a credit union or bank branch, this type of account will make things easy for you.
You only have to use your online bank, make automatic transfers, and maintain a low amount of deposit in your account.
But since it’s one of the online savings accounts, you will not be able to access your funds or make direct deposits through physical branches.
Most banks also do not offer ATM services for money market accounts.
Aside from that, the bank-to-bank transfer can take a few days to be completed.
Cash Management Account
Cash management accounts are more like investment accounts than saving alone.
If you want to use your savings primarily for investing, this type of account will serve its purpose.
It’s also ideal to use if you are planning to use your funds after a long time, such as using it in the future as retirement savings.
Some financial institutions offer this type of account, like online brokerages with higher interest rates than banks.
Plus, it has features similar to savings and checking accounts and can be insured by the FDIC.
However, that will depend if a third-party bank account will offer FDIC insurance or not.
Certificate of Deposit Account
If you are not planning to withdraw your savings for some time and want to earn higher interest rates than a regular savings account, a certificate of deposit account might be suitable for you.
In creating this account, you’ll have to set an agreement with the bank and make a time deposit.
Meaning, you’ll have to deposit funds and leave them on your account during the agreed time period.
Usually, that time period is around 1 to 60 months.
The longer the time and the larger the amount, the higher your interest will be.
A certificate of deposit (CDs) is available at both online and traditional banks.
You have to choose based on what’s more convenient for you.
However, if you prefer higher interest rates, online banks usually offer better than the traditional ones.
CDs are ideal for any type of savings goal, such as long-term and short-term savings.
The minimum deposit upon opening the account is low, and there will be no maintaining balance.
But they can charge you with penalties if you withdraw your money earlier than the agreed period.
Specialty Savings Account
If your savings goals are not suitable for the mentioned types of accounts above, you can customize your own account through a specialty savings account.
It is available in most banks, credit unions, investment companies, and other financial institutions.
The maintaining balance will depend on what kind of specialty savings account you will open.
Some even don’t have a maintaining balance at all.
However, the interest rates can be lower than the five types that I discussed.
There will also be strict rules and withdrawal penalties for withdrawals against the agreement.
Some of the specialty savings account that you can create the following:
- Students Savings Account
- Kids Savings Account
- Retirement Accounts
- Health Savings Accounts
- other types for other purposes
Do You Need More than One?
A single savings account will work just fine for personal finances, especially if your purpose is to save money alone.
But if you have greater financial plans, you might need more than one.
So first, identify all your financial goals.
You can see the samples below.
- Vacation Fund – If you have a short-term goal and want to travel to a certain place.
- Emergency Savings – If you want to ensure you’ll have emergency funds if there are unexpected expenses.
- Medical Expenses – If you want to ensure that you have funds for regular check-ups or in case something goes wrong with your health.
- School Expenses – If you have children or planning to have one.
- Moving Expenses – If you are planning to move to a new house, as moving can also be costly,
- Business Expenses – If you have plans to start a business or need to improve your current one.
- Retirement Savings – If you want to secure your future once you retire.
Everyone has the financial freedom to set certain goals and achieve them.
Regardless of what your goals are, a savings account can help you save money more efficiently.
If you think you have more than one goal and it’s necessary to create separate accounts, you always have the right to do so.
However, creating multiple accounts comes with pros and cons.
Consider them first before opening additional savings accounts.
The Pros of Having Multiple Accounts for Your Savings
If you are hesitating about creating additional accounts for your savings, here are a few reasons that might convince you:
- Organize and Track Your Savings
If you have separate accounts for different goals, it will be easier to track how much your savings for a specific goal is.
You won’t have to keep computing the total funds you have for what you are saving for compared to having a single account for everything.
- Protect Your Funds
Again, your funds can be more secured if they are in a savings account, especially for larger amounts.
You can save your money in a box or any container you want, but it will be safer in a savings account.
Besides that, the insurance also guarantees that you won’t lose all your money if something happens, unlike when you save it at home.
- Earn Interests
Saving money without an account can work well too.
But if you want to gain more benefits from saving money, consider the opportunity to earn interest.
The rate might not always be high, especially if you will use a regular savings account.
However, it’s better to earn something than nothing from saving your extra income.
The Cons of Having Multiple Accounts for Your Savings
Multiple savings accounts can also have disadvantages.
For this reason, it’s best to consider them and only open another account when necessary.
Here are some of the cons:
- Maintain Deposit Balance
Some account types for saving money require maintaining a balance.
So, if you open multiple ones that require it, you’ll have to keep the required amount in your accounts.
- You Might Need to Pay Penalities
If you do something that’s against your agreement with a financial institution, such as withdrawing money before the agreed time period, you’ll have to pay penalty fees.
- The Interest will Still Depend on Your Deposit.
Having a savings account doesn’t immediately mean that you’ll earn interest.
It will still depend on the type that you will open and the amount that you’ll deposit.
If your deposit doesn’t meet the minimum amount to earn interests, then you won’t.
Conclusion
Savings accounts can be essential, especially for more secured financial planning.
But since there are various types, you have to know what’s most suitable for your plans.
Aside from that, creating multiple accounts doesn’t only come with benefits but also disadvantages.
Therefore, before deciding if you will open more than one account, identify how many of them you actually need.
Remember, your financial strategies will significantly affect your future.
So, decide wisely!
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