8 Savings Accounts Everyone Should Have

It’s important to save money — for a rainy day emergency, for planned future goals, or to plan for life’s known, unknowns, like long-term care or medical bills.

With different savings needs, it’s prudent to have more than one type of savings account to help you best meet all of them.

And the process can be quite easy.

Having multiple savings accounts can help you better track and achieve different short-term and long-term goals, maximize interest rates, and minimize debt from credit cards or other loans.

8 Different Savings Accounts that Everyone Should Have

1. Rainy Day or Emergency Fund

An emergency fund, often called a rainy day fund, is the most important type of savings account you should have. This is a bank account with enough funds to cover three to six months of living expenses in the event you lose your job or have another large, unforeseen bill.

While you should be able to quickly and easily access funds if you need to, the idea is to set aside cash for a rainy day and not touch the stash unless there is a true emergency.

Diverting a small portion of your paycheck each month into a rainy-day savings account—via direct deposit—is one helpful, automated way to save. Ideally, you would want to open an account at a different bank or credit union from your checking account. This way, the money is out of easy reach from your daily spending.

2. Vacation Account

Whether you crave adventure or relaxation, everyone enjoys a vacation from time to time. And since the price tag can take its toll on your personal finances, opening a dedicated savings account to fund your travel costs can be a smart money move.

You can open a high-yield savings account (with an APY of up to 5%) to specifically set aside funds for an upcoming vacation.

Many financial planners and money experts recommend creating a separate account for your vacation-specific goals.

  • It leads to savvier planning for your vacation. You’ll research where you want to go and the costs for travel, lodging, food, and transportation. You’re more likely to set and stay on a budget.
  • It promotes good financial hygiene. You’re saving for different savings goals in different accounts and able to keep better track of your progress toward each one.
  • It limits your temptation to use money from other accounts — your Rainy Day emergency fund, money market account, or other long-term savings account — for your vacation.
  • You won’t rack up credit card debt to fund your vacation. There’s enough post-vacation hangover without having to add the stress of high-interest credit card bills into the mix.

¹Annual Percentage Yield (APY) is accurate as of 1/17/2024 and subject to change at the Bank’s discretion. The minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.

3. Freedom Account

A freedom account refers to a type of bank account that offers many free features and benefits to manage finances, including no minimum balance requirements, no monthly maintenance fees or service fees, and a large network of free ATMs.

If you are just getting started with savings, a freedom account might be a good way to begin. There are no maintenance fees, and you can start with just a few dollars.

4. Health Savings Account (HSA)

A health savings account, more commonly referred to by its acronym HSA, is a tax-advantaged savings account. It’s available to taxpayers in the United States enrolled in a high-deductible (HDHP) health plan.

Funds contributed are not subjected to federal income tax. It’s pre-tax dollars that are going into a medical savings account for medical expenses. Unused HSA funds can be rolled over into the next year. There is an unlimited carryover.

While an employer controls the funds in a similar Flex Spending Account (FSA), in an HSA the employee controls the funds. Funds are available as they are contributed and HSA funds can be invested (like retirement funds). Investment returns on HSA funds are also tax-free.

Put another way, an HSA allows you to invest money to cover future medical costs, like surgery, chronic illness, or end-of-life care. Funds invested can grow significantly year over year through compound interest, and you’ll pay no taxes on the growth when the funds go to qualifying medical expenses.

HSA funds are available as you distribute them (based on total account balance), and can be used for doctor visits, copays, prescription drugs, over-the-counter drugs, and many health and wellbeing products like sunscreen, bandages, or a humidifier.

With medical costs continually rising, an HSA can allow you to save for future expenses without having to liquidate assets, go into debt, or go without medical treatment.

5. Car Purchase or Repair Fund

If you own a car or other vehicle, eventually, you’re going to need to shell out money to repair it. Most of us can remember a stressful time when a repair bill (and an empty bank account) stared us in the face. Maybe you’ve had to borrow money from family, take a payday loan, or resort to similar measures to get your vehicle fixed.

You don’t want to put yourself in that spot repeatedly. (Sadly, odds are 100% you’ll need to spend money on maintenance or repairs in the future if you plan to continue driving a vehicle.) And a vehicle will only last so long before you’ll need to replace it. So, a car fund for repairs or a vehicle purchase makes a lot of sense.

Aim to save enough money for you to buy a new (used or otherwise) car in cash and don’t have to take out an auto loan. If you anticipate buying a $15K vehicle in four years, that’s $312.50 a month over 48 months. But even $50 a month can go a long way toward saving for a future fix.

6. Large Purchase Account

Consider a certificate of deposit (CD), money market savings account, or high-interest savings account to save for a down payment for your house, home renovations, wedding, boat, or other big-ticket items.

Generally, these purchases will cost more than you would bring home in one paycheck. So if you have a big-purchase savings account, you can pay cash instead of getting a loan or paying even higher interest rates on credit cards.

The best savings accounts have annual percentage yield (APY) rates of around 5% or more.

7. Retirement Account

There are many financial products geared toward retirement financial goals, including:

  • Roth IRA (Individual Retirement Account): may or may not be employer-sponsored
  • Traditional IRA: not employer-sponsored
  • 401(k): usually employer-sponsored

All three of these accounts offer a tax-advantaged way to save for your retirement. For employer-sponsored plans, there is usually an employer match for the contributions you make up to a certain percentage or dollar amount.

Comcast, for example, will offer a full match of every dollar you contribute to your retirement plan up to 6% of your salary. So if you earned $50K per year and set aside $3,000 (6%) a year, Comcast would match that and also put in $3,000.

Some employers will match you 50% on every dollar you put in, or put a cap on the total amount they will contribute (i.e., $10K per year).

Various other factors come into play, like vesting periods or whether contributions are pre-tax or post-tax. But in short, any of these account options offer you a fantastic way to start saving toward your retirement.

There for the long term, funds cannot be withdrawn until the account holder reaches age 59 1/2. There are tax penalties for any early withdrawals.

If you have an employer-sponsored plan, make sure to contribute at least enough to get the full employer match. Otherwise, you’re throwing away free money. And if you don’t have an employer-sponsored plan, you can easily open an individual IRA with your local bank or most online banks. There are many IRA accounts you can open with no minimum deposit ($0) required, like brokerage IRA accounts offered by Fidelity or E*TRADE.

8. College Savings Account (529 Plan)

A 529 College Savings Plan Account, or 529 plan, is a tax-advantaged way to save for your children’s college. But 529 funds can go toward more than just college. And eligible recipients don’t just have to be your kids.

529 plans can go toward post-secondary education (college, grad school, vocational school), textbooks, computers, or related school technology supplies, lab fees, housing (dormitory or off-campus), e-learning courses, and other job training.

And if your kids don’t pursue education after high school–or they win a full college scholarship and don’t need any help–other qualifying family members can use those funds. This includes you, your spouse, grandkids, siblings, or first-degree relatives (first cousins, nieces, nephews, aunts, or uncles).

While not everyone has kids, and not every kid goes to college, it’s a safe bet that most everyone will need education or job training well after their high school years.

Just $20 a week can turn into tens of thousands of dollars when invested in a 529 savings account over a decade or so. Interest rates are much higher than traditional savings account rates — up to 20x higher in a recent finding by U.S. News & World Report.

Frequently Asked Questions

Are all savings accounts FDIC insured?

No, not all savings accounts are insured by the government through the Federal Deposit Insurance Corporation (FDIC).

Only savings accounts that are held at member FDIC-insured banks and financial institutions are FDIC insured. And this insures deposits up to $250,000 per depositor per FDIC-insured bank.

  • Retirement accounts, HSA health savings accounts, and 529 college accounts are not eligible deposit accounts and they are not FDIC-insured.
  • Savings accounts at non-bank financial institutions are not FDIC-insured. Credit union accounts are one example. However, there is consumer protection of up to $250K offered through the National Credit Union Administration (NCUA).
  • Foreign bank accounts are not FDIC-insured. (It is possible though that the government in that country may offer its own type of insurance protection.)

It’s not just traditional, brick-and-mortar banks that are FDIC-insured. Many online-only banks are also included. You can view a list of insured banks on the government’s BankFind Suite.

What is the most profitable savings account?

In terms of bank savings accounts, the most profitable options are:

  • High-yield savings accounts (HYSAs)
  • Money market accounts (MMAs)
  • Certificates of deposit (CDs)

Interest rates can vary greatly, but current APYs range from around 4% to 5.25% for these products.

Which type of savings account is best?

A high-yield savings account — typically offered through online banks, online credit unions, and neobanks — may be the best option for consumers who want a traditional bank savings account but with higher APYs than you’ll typically get from a brick-and-mortar.

But really the best types of savings accounts are any savings account that you are disciplined enough to save money in, making regular contributions and only using the funds for their designated purpose.

Do not get trapped in analysis paralysis. Any savings account (FDIC or NCUA insured) is better than an empty wallet or a no-interest jar of coins. You can even open an online savings account within a couple of minutes without having to leave your house.

What is too much to have in savings?

You want enough cash in savings to cover monthly living expenses for 3 to 6 months; any amount beyond that is too much.

Extra funds beyond 6 months in living expenses should be invested in other investment funds and financial products with higher interest rates, like mutual funds, exchange-traded funds (ETFs), stocks, bonds, or retirement savings.

How much to save $5,000 in one year?

To save $5,000 in one year, you would need to carve out:

  • $416.67 per month
  • $96.15 per week
  • $13.69 per day

But considering the average U.S. taxpayer gets a tax return of a little over $3,000 each year, you may only need an additional $2,000 to reach the $5K mark.

To reach $2,000, that’s $5.49 a day. This is a figure you can reach by cutting back on dining out or trimming Starbucks runs, or even earning extra cash by doing a side hustle. You can find many online gigs to earn at least $5.49 a day on sites like Branded Surveys, UserTesting, or Kashkick.

Can I use my checking account as a savings account?

Yes, you could. SoFi, for example, offers a checking and savings account product with an attractive 4.20% APY. That’s a very high-interest rate – much better than you’ll get with most savings accounts, CDs, or MMAs at online or traditional banks.

But generally, you’re better off keeping your savings in a separate account — one that is not linked to your debit card so you’re not tempted to spend those funds. In fact, for many consumers, it’s a good idea to keep your checking account and savings account at separate institutions altogether.

Also, it is possible to find savings accounts with interest rates better than 5.00%. So by leaving those surplus funds in your checking, you’re losing money by missing out on those APYs. Just make sure to leave enough cushion for any accidental overdraft fees.

Do You Need to Open a Savings Account?

Saving money — for future goals and needs — is the most important thing you can do. Beyond preparing for future milestones, you can protect yourself — not to mention your family and your assets — from unforeseen setbacks.

It might not be easy to start saving. It requires discipline — and overcoming the hurdle of procrastination. But starting today (this very minute) you can open a savings account and deposit just a few dollars. And with every paycheck, you can tuck away a few more.

You can even set up a portion of your paycheck to be directly deposited there. As you grow your account balance — and the habit of saving — regularly setting aside money will get easier.

Comments are closed here.