How to Use a Savings Account

How many bank accounts does a person need? Does the average individual need more than one savings account? There is no simple, correct answer to these questions. Like most financial subjects, the advice can vary quite a bit from one person to another. Some people like a basic three-account array of checking, savings, and perhaps a Certificate of Deposit (CD) or other investment-type bank account. Others recommend extra accounts for specific purposes, such as separate savings accounts for married couples.

Multiple Accounts

There are those who prefer a few savings accounts for various purposes. Since they are generally easy to set up and maintain, a savings account at a bank does not require a great deal of effort. A multiple account system does not need to be excessively complicated. A plan can be as simple as defining a handful of purposes that savings accounts can serve and then setting goals for each different account.

For example, a vacation account can be designed with a set dollar figure goal, so that the motivation to slip some extra money into that account monthly is tied to a clear benefit, like a nice trip, when you reach the specified amount. Many parents like to set up a college saving account for children, either in the parent’s name or as a joint account with the child. Amounts paid into it over the years grow toward a college tuition fund. Others like to establish a “big ticket item” account, which can help to avoid consumer debt.

With regular deposits in the account for major purchases, such as items that cost over $500, the account will have enough money available for the next time an urgent need arises. If the refrigerator gives out, or the car needs new tires sooner than expected, one does not need to put the purchase on a credit card or borrow money to get it, but simply draw the funds out of the Big Ticket account.

Obviously, if a substantial sum of money is going into an account to be held over a long time, such as a retirement account, it makes sense to put the money into the best interest-bearing account available. In general, savings accounts pay some interest, but typically at fairly low rates, compared to investment accounts.

A System That Works

The key to any financial system, for most people, is that they system must work for them. Every individual is unique, and has particular spending patterns and needs in life. The system of savings, debt payment, and financial management that is most effective for a person is the one that functions the best to keep the bills paid. Everyone needs to assess their unique situation and find a budgeting and savings plan that fits with their lifestyle. For almost everyone, though, a savings account will be part of the overall financial management plan, so it makes sense to learn more about the various accounts available and understand some of the differences between them. For example, some accounts pay a bit more interest, but have a yearly fee. Whichever account fits with the total budget system and lifestyle, and helps to encourage regular deposits so that savings continue to grow, is the one that is best for a particular individual.