Where should you store your savings? The answer to that question depends on your savings goals. Find out which accounts you should use for your savings goals.
Emergency Savings
It’s crucial that you have a stash of savings reserved for emergencies. Otherwise, you might not have enough funds available to cover an urgent, unplanned expense that shows up out of the blue. You’ll have to rely on another means to manage the expense in a short amount of time.
Without a substantial emergency fund, you could charge the expense to your credit card and work to pay down the balance later on. Or you could look into personal loan options online and see whether you’re eligible to fill out an application. If you’re ever interested in this borrowing option, you should click here to see what you need to know about personal loans before you apply for one. It could help you get through an emergency.
What’s the Best Account for Emergency Savings?
The best account for emergency savings is a standard savings account. This type of account comes with features that are ideal for an emergency fund:
- It has an interest rate that will help the balance grow over time.
- It comes with limited monthly withdrawals and transfers to stop you from emptying your account.
- It is easily accessible. You can withdraw the savings that you need immediately.
Retirement Savings
You don’t want to reach retirement age with nothing to show for it. Without any retirement savings, you’ll only be able to rely on government benefits and the generosity of your loved ones when you’re no longer working. That’s a very vulnerable position to be in.
No matter how young you are, you should start building up your retirement savings so that you’ll have a comfortable nest egg in the future.
What’s the Best Account for Retirement Savings?
The best account to store retirement savings is an individual retirement account (IRA). Any adult can open one of these accounts for retirement savings, even if they already have retirement savings options through their workplace, like a 401(k) or a pension plan.
An IRA is a tax-advantaged retirement savings account that is not tied to your employment. It comes with various investment opportunities, like stocks and bonds, which can help your balance grow. It also has restrictions for early withdrawals to prevent users from spending their savings before they even reach retirement.
College Fund Savings
Do you have kids? Are you planning on setting aside some savings to pay for their college? You will need to save up quite a bit. According to the National Center for Education Statistics, the annual tuition costs for full-time undergraduate students ranged from $9,400-$37,600 from 2020-2021. As the cost of tuition rises every year, you can expect that expense to grow by the time your kids are ready to apply.
What’s the Best Account for College Fund Savings?
A 529 plan is a tax-advantaged savings account specifically designed for educational goals. So, once your kid applies for college, they can make a tax-free withdrawal from their 529 plan to cover education-related expenses like tuition, books and meal plans.
Some versions of 529 plans can help you lock in a college tuition rate. Even if a college raises its tuition rate, you might be able to pay the lower rate that you locked in through your plan. This could save you a lot of money.
There are accounts that are specifically designed for certain savings goals. So, don’t shove all of your savings into a single account. Spread them out!
