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Using Multiple Savings Accounts for Different Goals

October 21, 2019 · 8 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Using Multiple Savings Accounts for Different Goals

When you’re just starting out, single and carefree, you might be content with just one checking account and one savings account. Using them is simple—you spend from your checking and transfer to savings as often as you can.

As life gets more complicated, however, so do your finances.

How do you keep track of it all? That depends on your style. Ask any savings-minded friend how they organize their money, and they can likely recite the routine in their sleep.

They know exactly what money is where, the current balance of each account (give or take) and what it’s for, such as their kids’ college, retirement, a house down payment, or a rainy day fund.

If you’re saving for a few different things at the same time, you may be wondering “Should I open a second savings account?” Separate savings for separate goals can be a solid strategy, especially if you have several needs happening at once. Read on to review and determine if having multiple savings accounts is right for you.

Getting to Know the Different Types of Savings Accounts

Generally speaking, savings accounts are seen as a safe place to stash your cash. Here are some of the most common:

•  Traditional Savings Account: This is your basic savings account offered by most banks that’s tied to a checking account. Usually, these offer a low interest rate and won’t do much to grow your savings. It may have a minimum balance requirement, a limit on the number of transfers or withdrawals per month, and the interest rate may be as low as 0.1% .

•  High-yield savings accounts: These offer higher interest rates, but can have additional conditions ( usually minimum balance requirements) to compensate for the higher interest rate. Growing in popularity is a unique hybrid of high yield savings and checking that offers higher interest rates along with a combination of benefits popular with traditional, separate accounts.

•  Certificate of Deposit (CD): A CD allows your savings to grow over a period of time at an interest rate similar to a high-yield savings account, with the. However, you can’t touch your money for the length of the CD without incurring penalties. And usually, the longer the CD’s length, the better the interest rate.

•  Money Market Deposit Account (MMDA): Similar to a CD in that it offers higher interest rates, an MMDA lets you have easier access to your money. They’re also likely to have a higher initial deposit, minimum balance, and the number of monthly withdrawals may be limited. You might hear the term Money Market more often associated with a mutual fund investment account, but this version is considered savings—that means no investment expenses and less risk.

A Quick Note About Saving vs. Investing

While the accounts outlined here focus specifically on cash-based savings, some people also opt to save via common investment accounts.The biggest difference between saving and investing? Risk.

While investment accounts have the potential for a much higher return, they also have the potential to lose big. This makes savings accounts a safer choice for any short term purchases in the next 3 to 5 years.

•  Recommended: The Differences in Saving and Investing

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The Advantages of Having Multiple Savings Accounts

If your finances are complex—you travel for work, have a large family, or are self-employed—having multiple savings accounts tied to separate savings goals could be a good way to keep yourself organized and on track.

One common way couples use multiple accounts, for example, is to set up a joint account for paying the monthly bills and other family expenses, growing an emergency fund, or saving for a family vacation. In addition, each person might also keep their own account for personal spending and savings.

Similarly, a freelancer might consider one account for everyday, personal use, a separate account for business expenses, and even a high-yield savings account for storing (and growing) the money they set aside for taxes each quarter.

Using multiple savings accounts can give some the willpower to say “No, I can’t touch that money. It’s for {insert your savings goal here.}” And watching those balances grow can be a huge motivator.

Creating this clearly defined picture can make it easier to see how much progress you’re making. Seeing the balance grow can be an inspiration to help you continue saving toward your goal.

Separating your savings funds from your money available to spend could also help you stick to your savings goals. By intentionally separating spending money from money that is intended for saving, you could potentially curb unnecessary impulse purchases.

But it can also require discipline, determination, and a good amount of organizational fortitude. While separating your finances leads to transparency and hopefully less confusion, having different accounts will still require a level of financial responsibility.

Managing Multiple Savings Accounts

Multiple savings accounts might not be the best option for someone who’s not ready to put in the work. Using the “set it and forget it” philosophy here could lead to overdraft fees and more if money is transferred without adequate funding to cover it. However, if you can take a few moments each month to check into your accounts, management should come fairly easily.

Using Automatic Deposits

Having a dedicated account for different savings goals could allow you to set up automatic deposits. This could eliminate one item on your to do list, and outside of a few status updates, automating your finances can make your money management feel much simpler.

Instead of physically moving money around, you can work with your budget to set a specific amount for each goal to be automatically contributed each month or each paycheck.

Prioritizing Goals between Accounts

Clearly defining your financial goals along with their different balances can help you prioritize them. Understanding what is most important can help inform your saving strategy and make it easier to make adjustments as you work toward your savings goals.

For example, if you are behind on a high priority goal, you could make the executive decision to funnel a bit of money from a low priority goal for a certain amount of time.

Often, people think of their savings as one single entity, even if they have numerous financial goals. This mentality brings the danger of a false sense of savings progress. Say you plan on buying a home, going on vacation, and buying a new car in the next few years.

You may feel on track by adding to your savings each month – but how much closer are you to the vacation in comparison to buying a home? Equating a specific account to a correlating goal can help clear this up.

Savings vs Spending

Splitting up your savings between different accounts also allows you to broaden the types of accounts you are using. For example, you could keep some money in a high interest savings account to reach a financial goal faster, while keeping some money in a spending account you can track against a monthly budget.

It can also be a smart practice to build out more than just one spending account. Separating your money by different expenditures can better help you keep to a budget.

So instead of going through your checking out each month and asking yourself if you splurged on expensive dinners last month, a special account just for dining out can help you stay in budget.

Preparing for Future Purchases

It’s likely you have a few future purchases you plan on making for yourself, family, or friends. The more to plan for, the harder it can be to make sure you savings can cover your future plans.

Saving up for holiday gifts, summer travel, wedding costs, or even things for yourself like a wardrobe update or a new computer can often seem daunting. This is where setting up separate accounts can make things run much smoother.

Trying to update your phone by the end of the year? Simply set up set up a separate account and add funds in proportion to you estimated purchase date.

Want to have a few hundred saved away for family holiday gifts? Set up an account labeled “Holiday Purchases” and automatically shift funds over each month until you reach your goal.

This method can not only help you feel a bit more organized, but it can also help you from reaching your purchase date and coming up short on funds.

Savings, Simplified

Goal-specific accounts can be a powerful tool depending on your personal preference. If you’re interested in maintaining different savings accounts for different goals, but don’t want the hassle of managing multiple accounts at different financial institutions, take a look at SoFi Checking and Savings®. Open a checking and savings today.

SoFi Checking and Savings allows you to create individual financial vaults within a single checking and savings account. This means you can create different umbrellas—so you can easily save, store, and spend from one convenient account.

Customize your vaults with goal-specific names (e.g., Tour through Thailand) so you can instantly track your progress every time you log into the app.

You can even set up a direct deposit so when your paycheck hits, you can easily divide it up between your different savings goals. And there are no account fees with SoFi Checking and Savings and you’ll get unlimited ATM fee reimbursement.

Financial disorganization holding you back? Learn more about SoFi Checking and Savings and using money vaults to meet your savings goals.

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