Savings Accounts: They’re Not Just For Rainy Days
Savings accounts are a great place to park your emergency fund, but they’re not just for rainy days. They can be used to help you actively plan and prepare for the future too.
Using a savings account to plan
You know all those irregular expenses that seem to pop up when you least expect them? Setting up a system of regular transfers to savings for things like car repairs, taxes, homeowner’s insurance, travel, etc. can prevent that. (It makes budgeting easier too.)
All you need to do is note down the amount of the irregular expense you want to save for, and how often it occurs. For example, if your property taxes are due twice a year, and they cost you $600 each time, you’d need to save $1200 per year. Divide that total by the number of times you get paid in a year, and you’ll have the amount you need to send to savings each payday. For example, if you got paid every two weeks, you’d divide $1200 by 26 to get $46.15 per check.
Getting the money there
Most banks allow you to set up these transfers to happen automatically. If you prefer direct deposit, your employer can usually direct deposit to both your savings and checking accounts with no problem. These methods are great because you never see the money until you’re ready to use it.
Of course, you can always do manual transfers too. (Just make sure you actually do them.) If you find yourself short of money when it comes time to make a transfer, don’t be tempted to just assume you can make it up the following paycheck. Instead, take that as a sign that means you need to take a closer look at your spending. (Tracking your spending is always a good idea anyway.)
Selecting a savings account
A savings account’s key feature is that the money you put in stays there until you need it. Or at least that’s how it should be.
It’s important that you choose an account that is insured (usually by the FDIC or NCUA) so that your money will be safe. You should also choose one without any fees at all – monthly or otherwise. There are plenty of banks and credit unions who offer free accounts and transfers — especially the online ones — so you shouldn’t have to pay a fee to put your money into savings.
Interest rates are a relatively small factor right now, because they’re all super low, but some banks do offer better rates than others. You may as well get higher rates if you can so try and view the best savings accounts online.
After that, it’s a matter of preference. I use ING Direct because they allow you to easily create what most people call “sub accounts”. Basically these are separate accounts that you can label however you want, but you interact with them using a single customer number. You may prefer something different from your savings account and bank, but chances are you’ll be able to find what you need. There are plenty of options out there.
This post is a part of Women’s Money Week 2012. For more posts about saving and investing, see the Saving and Investing Roundup.
I am almost done paying off my student loan. When I pay it off, I was looking at different options for automated deposits to savings and investment accounts for both retirement, a future down payment, and a new car fund.
I might use my ING Direct account for the car fund and my Schwab accounts for everything else. My employer allows me to split my direct deposit, so it will be easy to get everything setup how I want it.
Sounds like you have a plan :) (And congrats on getting close to having your student loan paid off!)
Totally agree! I think we have about 10 different savings accounts…lol. One for travel, one for car emergencies, one for Christmas, one for medical, etc.
Nothing ever feels like an emergency when it has its own little savings account. :)
I may have you tied for accounts :)
Good strategy for making big expenses that much less painful. We have our property taxes tacked onto our mortgage… so we pay $65 a week. We don’t notice the expense whatsoever… and are always happy we pay it with the mortgage come March and June when everyone else starts complaining about paying property taxes =)
That’s pretty similar to how we do it too.
My weekly deposits are split in two ways. One to my checking account and one to my savings account. My savings account acts as an overdraft for my checking and is never touched for any reason except planned vacations and extreme emergencies. Discipline is key!
Yup, I agree. The nice thing is that discipline can become a habit :)
I always thought I was crazy for having multiple savings accounts – thank you for helping me to feel more “mainstream.” I use my accounts for all sorts of things, not just saving money – it’s really more of a budgeting tool for me!
That’s what they end up being for us too :)
Automating things make it so much easier. I also found having a separate bank, like an online bank, for a savings account makes it harder to spend that money. At least it works for me.
I’m a huge fan of online banks :)
It’s all about developing those healthy habits I think. Simple things like shopping lists, being a bit more frugal with the kitchen cleaning(baking soda is magical stuff for cleaning). Not too frugal(as you don’t want to deprive yourself) but frugal enough to make the most of what you have.
I could not tell you how much I saved simply by making a shopping list and eating before I go shopping. Sticking to that list is key.
Also writing down a big savings goal than breaking it down into smaller goals really helps me but maybe other people are different:).
Do you have any tips on good spending and saving habits, Jessie?
I think you’ve got some good tips there yourself :)
Making a list and sticking to it is huge, as is not going to the store for “just a couple of things”.
We use ING Direct as well. Very easy to use and the sub accounts feature really helps in planning for the immediate future. By the way, did you know that ING Direct sold their US stuff to Capital One? I got an email about it a few days back.
Yeah I got that email too. It kind of surprised me. I hope nothing changes with their service.
I love having several different types of savings accounts according to what I’m saving for. It leads to faster results and I’m more focused. It’s my insurance for reaching my savings goals.
That’s a nice way to look at it.