The Best Bank Account Type for Each of Your Financial Goals

Setting, managing and achieving your financial goals effectively often requires having the right tools for the task at hand. Your personal finances can be grown in a lot of directions, but whether you are looking to develop better habits with saving money or spending money, where you keep your money is important. Selecting which bank, credit union or financial institution best fits your needs is one step, but the next steps include picking the type of bank account that will best help you reach your financial goals.

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No matter if you’re saving for a dream vacation, building an emergency fund, buying a house or planning for retirement, different types of bank accounts can help you reach your goals in a more timely matter. Here’s a guide to the best bank account types for whatever financial planning you have in mind .

Emergency Fund: High-Yield Savings Account

• Best for the financial goal: Having three to six months’ worth of expenses to cover unexpected events like job loss or medical emergencies

An emergency fund is a crucial safety net that should be easily accessible yet separate from your day-to-day spending. A high-yield savings account or even a money market account is ideal for this purpose.

Financial experts recommend you keep at least three to six months’ worth of expenses in an emergency savings account to protect you from unexpected financial shocks like job loss, medical bills or home repairs. Having something stored away for a rainy day has benefits like the following:

• High interest rates: These accounts typically offer higher interest rates compared to traditional savings accounts, allowing your money to grow faster, which is ideal for an account that will just sit there until you need to access it.
• Liquidity: You can access your funds quickly in case of an emergency, but the separation from your checking account discourages impulsive spending.
• FDIC insurance: Your deposits are insured up to $250,000 per depositor, ensuring your money is safe.
• Dedicated savings: Keeping this money separate from your other accounts helps you track your progress and avoid spending it on non-related expenses.

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Tracking Expenses: Checking Account

• Best for the financial goal: Tracking your spending, building your budget and keeping a reliable and flexible account for everyday expenses

Checking and savings accounts are the bread and butter of your financial starter pack. For managing daily expenses and withdrawing money, a checking account is essential. This is where your paycheck lands and where you handle your routine financial transactions.

Keep in mind that many basic checking options come with minimum balance requirements and monthly maintenance fees, however, you can waive the latter by maintaining the former. Basic money management starts with tracking your daily transactions and building a budget from there.

So if your financial goal is to pay off debts such as credit cards or student loans, then first you need to get a handle on where you’re spending your money. Here are some reasons you’ll want to find a checking account you can count on.

• Ease of access: Checking accounts offer unlimited transactions, making it easy to pay bills, shop and withdraw cash.
• Debit card access: Most checking accounts come with a debit card, allowing you to make purchases and withdraw cash from ATMs. Keep in mind to use ATMs that are in your network to help avoid fees.
• Direct deposit: Employers can directly deposit your paycheck into your checking account, ensuring quick and easy access to your funds.
• Autopay your bills: You can set up your checking account to automatically pay your phone or utility bills to make sure you’re never late on payments. Making on-time payments can even help improve your credit score.

Short-Term Financial Goals: Certificate of Deposits (CDs)

• Best for the financial goal: A specific savings goal with a set timeline, such as eight months or four years

If you have a short-term goal, such as saving for a car or a home down payment, a CD might be a suitable option. Unlike other deposit accounts, when you put money into a CD, keep in mind that you cannot access these funds until the term length reaches maturity, otherwise you could incur an early withdrawal fee. CD term lengths can range anywhere from three months to five years so if you have a specific date or time by which you would like to grow your savings, this can be a great structure to work within.

If you know you won’t need the money you put into the account as your initial deposit for a fixed amount of time, CDs can earn you a guaranteed rate of return, which makes it an ideal account for short-term goals. Here’s why:

• Fixed interest rate: CDs offer a fixed interest rate for a specific term, typically higher than standard savings accounts.
• No access temptation: Your money is locked in for the term of the CD, discouraging premature withdrawals.
• Guaranteed returns: You know exactly how much you’ll earn by the end of the term, making it easier to plan.
• Automatic transfers: Many banks allow you to set up automatic transfers to this account when term length has matured, making continuous saving effortless.

Long-Term Financial Goals: Traditional or Roth IRA

• Best for the financial goal: Retirement planning with the option to choose based on your current and expected future tax situation

For long-term savings, especially retirement, what you start saving today will greatly brighten the security and outlook of your financial future. There are many options when it comes to retirement accounts and you can set up your own right through your bank even if you also have one through your employer.

There is no getting around retirement savings being a vital part and often the end goal of the entire journey of your financial planning. Whether it’s a 401(k) or Roth IRA, make sure you are diversifying as the best retirement account also means having more than one. Here are some benefits and advantages:

• Tax advantages: Traditional IRAs offer tax-deferred growth, meaning you don’t pay taxes on your contributions until you withdraw in retirement. Roth IRAs, on the other hand, allow for tax-free withdrawals if certain conditions are met.
• Compounded growth: The money in your IRA can grow significantly over time due to the power of compounding.
• Wide range of investment options: IRAs typically offer a broad selection of investment choices, including stocks, bonds and mutual funds.
• Motivation: Seeing your progress toward a specific goal can keep you motivated to save more.

Wealth Building: Brokerage Account

• Best for the financial goal: Growing wealth over time through strategic market investments

Many big national banks such as Bank of America, Chase and more offer brokerage accounts that are a good step toward greatly growing your wealth, especially if you want the convenience of doing it from a financial institution you already trust. If you are interested in building wealth through investments, a brokerage account may push your risk tolerance but also your estate advancement.

With higher risks come higher rewards, and this is particularly true with investment accounts. Consider the following factors when choosing your brokerage options:

• Investment variety: Brokerage accounts provide access to a wide range of investment options, including stocks, bonds, ETFs and mutual funds.
• Potential for higher returns: While investing comes with risks, it also offers the potential for higher returns compared to traditional savings accounts.
• Flexibility: Unlike retirement accounts, you can withdraw your funds from a brokerage account at any time, though this may have tax implications.

Final Take To GO

The bottom line is that the right bank account type for your financial goals can make a significant difference in how quickly and efficiently you achieve them. Whether you’re looking to safeguard your savings, manage daily expenses or build wealth, there’s a bank account tailored to your needs. By strategically using these accounts, you can optimize your financial strategy and reach your goals with confidence.

This article originally appeared on GOBankingRates.com : The Best Bank Account Type for Each of Your Financial Goals