Saving money is the first step toward achieving your financial goals. But not all savings goals are created equal. Some goals are short-term, like setting aside money for holiday gifts, while others may stretch years into the future, such as buying a home, paying for a wedding, or preparing for retirement. When your savings goals extend beyond a year or two, you may want to consider a long-term savings account.
But what exactly makes a savings account “long-term”? And with so many options — high-yield savings, certificates of deposit, money market accounts, or retirement-specific vehicles — which type is best for your situation?
Below, we’ll explore the essentials of long-term savings accounts, when to use them, and how they can help you reach your biggest financial milestones.
Key Points
• Long-term savings accounts are designed for goals that are at least a couple of years away.
• High-yield savings accounts, certificates of deposit, money market accounts, and retirement accounts can be good options.
• High-yield savings accounts offer higher-than-average interest rates and easy access.
• Certificates of deposit provide fixed, competitive rates but penalize early withdrawals.
• Retirement accounts offer tax advantages and long-term growth.
What Makes a Savings Account “Long-Term”?
In simple terms, a savings account becomes “long-term” when the money is meant to stay untouched for several years, and often much longer. Short-term savings, like an emergency fund or paying for an upcoming vacation, are designed for relatively quick use. Long-term savings, on the other hand, are earmarked for goals that might be a few years — or even decades — away.
While long-term savings accounts generally offer lower returns than investment accounts, they provide security, predictability, and liquidity. These three factors are especially important when you know you’ll need the money at a specific point in the future.
4 Best Types of Long-Term Savings Accounts
There is no single savings account that works for every saver. Instead, the best long-term savings option will depend on your timeline, your need for access to the funds, and how much you want to prioritize growth. Here are four types of accounts (including one investment account) that can help you reach your long-term savings goals.
1. High-Yield Savings Accounts (HYSAs)
A high-yield savings account is a type of savings account that offers a significantly higher interest rate, or annual percentage yield (APY), than a traditional savings account. These accounts are typically offered by online banks, which tend to have lower overhead costs than brick-and-mortar institutions and can pass that savings on to customers in the form of higher rates and lower (or no) fees.
HYSAs are usually insured by the Federal Deposit Insurance Corporation (FDIC), which means your deposits are covered up to $250,000 per depositor, per insured bank, for each account ownership category, even if the bank were to fail.
In addition to safety, HYSAs also offer easy access to your funds via debit card or transferring money online. That accessibility can make them a good fit for people who want to earn meaningful interest but still keep the option of withdrawing their money if a goal comes up sooner than expected.
If you’re saving for a home purchase, a new car, or a major renovation within the next few years, you may find an HYSA particularly useful. An HYSA is also a good place to stash your emergency fund (more on that below).
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2. Certificates of Deposit (CDs)
Available at banks, credit unions, and brokerage firms, certificates of deposit are time-locked accounts where you agree to keep your money deposited for a set term — often ranging from six months to five years — in exchange for a fixed interest rate.
Rates on CDs are not only guaranteed but are generally higher than what you could earn in a traditional savings account. CDs are also typically insured by the FDIC or National Credit Union Administration (NCUA), which insures deposits at credit unions.
This type of long-term savings account can be ideal for savers with a clear timeline. For example, if you know you’ll need the money in three years for a down payment, a CD of the same length can help you protect your funds while also ensuring steady growth.
3. Money Market Accounts
A money market account (MMA) is an interest-bearing deposit account offered by banks and credit unions that blends features of both savings and checking accounts. MMAs typically offer higher rates than standard savings accounts, along with some of the conveniences of a checking account, such as checks and a debit card.
Similar to other types of savings accounts, MMAs are usually FDIC- or NCUA-insured. However, they often require higher minimum balances and may charge fees if you don’t meet monthly balance requirements.
An MMA can be a flexible option for long-term savers who want to earn more than the average savings rate but still want to access their funds occasionally. You might consider an MMA for an emergency fund, saving for a large purchase (like a car or wedding), or holding funds for future investments.
4. Retirement Accounts
Retirement-specific accounts — such as 401(k)s, Individual Retirement Accounts (IRAs), or Roth IRAs — are technically investment vehicles but are crucial for long-term savings. These accounts are designed specifically for retirement and offer unique tax advantages.
These accounts also allow savers with decades-long time horizons to benefit from compounding returns (which is when your returns start earning returns of their own) and, in some cases, employer contributions.
Because they are tied to investments like stocks and bonds, retirement accounts do carry risk, meaning balances can fluctuate in the short term. However, the long time frame can help smooth out those fluctuations. Plus, the tax benefits can make them hard to beat for anyone focused on retirement. Their tradeoff is limited liquidity, since withdrawing money early often results in penalties.
When to Use a Savings Account for Long-Term Goals vs an Investment Account
One of the biggest questions savers face is whether to use a savings account or an investment account for long-term goals. The answer largely depends on your exact timeline and tolerance for risk
Generally speaking, you want to use a savings account when:
• You’ll need the money within the next one to five years.
• You can’t afford to risk losing your principal.
• Your goal has a fixed date, such as a wedding or tuition payment.
Consider using an investment account when:
• Your goal is more than five years away.
• You’re comfortable with short-term market fluctuations in exchange for the chance for higher long-term growth.
• You’re saving for retirement or other distant financial milestones.
In short, savings accounts are about security and liquidity, while investment accounts are about growth and long-term wealth building.
Examples of Long-Term Savings Goals
What might you use a long-term savings account for? Here are three common examples.
Saving for a Down Payment on a House
Buying a home is one of the largest financial milestones most people will face. If you plan to buy in the next few years, keeping your down payment in a HYSA, CD, or MMA ensures your money is safe and growing without the risk of market downturns derailing your purchase plans.
Building a Fund for a Future Large Purchase (Like a Car or Wedding)
Whether you’re planning a dream wedding or upgrading your vehicle, large expenses require careful planning. By using a dedicated savings account — such as a money market or HYSA — you can separate these funds from your everyday spending while earning competitive interest.
Creating a Sabbatical or “Freedom Fund”
More people are saving for lifestyle choices, such as taking time off work to travel, study, or recharge. A sabbatical or “freedom fund” can provide peace of mind and flexibility. Keeping these funds in a long-term savings account like a HYSA, CD, or MMA, ensures they’ll be available when the time is right.
When to Consider an Emergency Savings Account
While long-term savings is essential for reaching your future goals, it’s equally important to have a separate emergency savings account.
This account provides a cushion for unexpected events, such as losing a job, facing a sudden illness, or needing to pay for urgent car or home repairs. Knowing you have funds available for emergencies can ease financial anxiety during a crisis. It also prevents the need to rely on high-interest credit cards or loans to cover surprise costs.
Experts generally advise setting aside at least three to six months’ worth of living expenses in a separate savings account earmarked for emergencies.
Emergency funds are generally best stored in HYSAs or money market accounts, where the money is accessible but still earning above-average interest. Having this safety net allows your long-term savings to stay intact, even when life throws an expensive curveball.
How to Use a Savings Account to Organize Your Long-Term Savings
Managing multiple goals can get tricky, but today’s digital banking tools make it easier. Many banks and credit unions allow you to:
• Open multiple accounts or create customized sub-accounts and label each fund (e.g., “House Fund,” “Wedding Fund”).
• Automate transfers so savings happen consistently without effort.
• Track your progress toward each goal with visual dashboards.
By assigning each goal its own dedicated account or sub-account, you reduce the temptation to borrow from one savings pot to pay for a different goal or expense. It also makes it easy to track your progress, since you can see exactly how close you are to reaching each milestone.
The Takeaway
Long-term savings accounts are powerful tools for turning your future plans into reality. Whether you choose a high-yield savings account for flexibility, a CD for guaranteed returns, a money market account for occasional access, or a retirement account for decades-long growth, the right choice depends on your goals and time frame.
The best long-term savings account is ultimately the one that supports your unique plans, provides the right balance of safety and growth, and makes it easy for you to stay disciplined until you achieve the milestones that matter the most.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
What type of account is best for long-term savings?
The best account for long-term savings depends on your goals and risk tolerance. For safe, predictable growth, high-yield savings accounts, certificates of deposit (CDs), or money market accounts are good options. If you want higher returns and can tolerate risk, retirement accounts like IRAs or 401(k)s and investment accounts may be better. Many people use a mix: savings accounts for stability and investment accounts for growth. Diversifying helps ensure your money grows while remaining accessible for future needs.
What is a long-term savings account called?
A long-term savings account doesn’t have a single universal name — it depends on the purpose and institution. Common options include certificates of deposit (CDs), individual retirement accounts (IRAs), 401(k)s, or investment accounts. These accounts are designed for goals like retirement, buying a home, or funding education. High-yield savings accounts and money market accounts can also serve mid- to long-term goals, especially if you want to maintain access to your funds.
What is considered long-term savings?
Long-term savings generally refers to money set aside for goals that are several years or even decades away, such as buying a house, funding a child’s education, or retirement. Unlike emergency funds or short-term savings, which cover immediate or near-future needs, long-term savings are designed to grow over time through interest, dividends, or investment returns. These savings often benefit from compound growth, which is when the returns you earn also earn returns, which can help your money grow faster.
How much should I have in my long-term savings account?
The amount you should have in long-term savings depends on your financial goals, age, and income. A common benchmark for retirement savings is to aim to save at least 15% of your pre-tax income each year, including any employer match. By age 30, some experts suggest having one year’s salary saved, increasing to three times by age 40, and six times by age 50. However, smaller long-term saving goals, like a down payment on a house, will require less.
What kind of savings account makes the most money?
If you’re strictly looking at savings accounts, high-yield savings accounts and certificates of deposit (CDs) typically earn the most interest. However, if your goal is maximizing long-term growth, investment-based accounts — such as brokerage accounts, individual retirement accounts (IRAs), or 401(k)s — generally offer much higher returns over time, though with more risk. Money market accounts can also pay higher rates than standard savings. The best choice depends on your timeframe, risk tolerance, and need for liquidity.
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