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Use Different Savings Accounts for Budgeting and Saving
Managing your money doesn’t have to feel complex. At the same time, keeping things too simple, like putting all your cash into a single checking account, can make sticking to your budgeting plans more challenging.
While it feels great to have that direct deposit drop into your checking account every payday, keeping your money in one place can complicate your finances. Using a single account to pay bills, save, and spend can make tracking your money complicated.
The good news? Using multiple accounts can help you stay organized, develop smarter habits, and provide meaningful progress toward your financial goals.
Let’s go over the benefits of a few different savings accounts, including tips on how to use them.
Use a Checking Account for Money You’re Ready To Use
The checking account is the workhorse of your finances. It’s meant for frequent use, making it great for everyday purchases.
Checking accounts are great for:
- Making debit card purchases
- Check writing
- Online bill payments
- Direct deposit
Thanks to a checking account’s accessibility, you can think of it as a “spending hub.” It’s where your money waits until it’s ready to move elsewhere.
However, checking accounts aren’t necessarily geared towards growing your savings. These accounts offer little to no interest, which means that money that stays in a checking account won’t do much over time.
For this reason, using one or more types of savings accounts can help your money go further. Now, it’s time to go over two of the most common savings accounts: money market savings accounts and certificates of deposit.
Money Market Accounts Add Flexibility
A money market savings account is a dividend-bearing option that adds flexibility to your finances. These accounts typically offer higher yields than standard savings accounts, meaning they earn more dividends.
Many financial institutions also offer different tiers of money market accounts. When the balance in an account reaches and remains above a certain threshold, that account also receives a higher dividend rate. That means the more you save, the more the account earns through dividends.
Best of all, money market accounts still provide flexibility. In other words, you can still access your money and withdraw from it when you need it, often without incurring penalties.
Money market accounts hit a sweet spot where your money can grow while still being available when situations demand it. These accounts are a sensible option for:
- Emergency funds
- Short-term savings goals (like a vacation)
- A buffer between your checking account and long-term savings
Money market accounts are also great for keeping your finances organized. This is a savings vehicle that lets you keep money on hand in case you need to cover an emergency or a sudden expense.
It's also a great account for setting boundaries. Since you have a dedicated place to store money for later, it’s easier to distinguish between spending and saving. Money market accounts empower you to reach your financial goals.
However, be aware that financial institutions may impose limitations on their money market accounts, such as minimum withdrawal amounts or transaction limits. Also, a money market account may not earn dividends if its average daily balance does not meet the specified minimum. Always check with your financial institution to verify their terms on money market accounts.
Lock in Savings with Certificates of Deposit
A certificate of deposit (CD) is a savings account that keeps your money for a fixed term, often for several months or years. In exchange for keeping your money for the full term, the CD will grow your savings with a higher, guaranteed interest rate.
There are several benefits to holding a certificate of deposit:
- Higher returns: CDs typically have higher interest rates than standard savings accounts
- Predictable growth: You will know how much you’ll earn through the duration of the CD’s term since the rate remains the same
- Built-in discipline: Encourages you to leave your savings alone
“Built-in discipline” is one of the key features that distinguishes CDs from other savings accounts. If you withdraw your money from a CD before the term is up, you will incur a penalty, often in the form of a fee. Paying that fee could undo all the extra money you would have earned if you had left it alone.
Certificates of deposit work best for money you don’t need or plan to use right away. As such, they’re typically used for long-term savings goals, such as the down payment on a car or a house. CDs can also be used for structured savings strategies, like retirement planning.
Much like how money market accounts set boundaries for your savings, CDs encourage building discipline and good financial habits.
Summing It All Up: Using Checking and Savings Accounts
Now that you know about other types of savings accounts, let’s put it all together. You can plan a simple, multi-account strategy that sets boundaries and gives your money a purpose.
Here’s a model savings skeleton using the three accounts we’ve mentioned, and the purposes they might serve:
- Checking account: For everyday spending and bills
- Money market account: For an emergency fund and short-term goals
- Certificate of deposit: Long-term savings and future planning
Structuring your finances with multiple accounts empowers you to set your priorities while keeping your finances manageable. The key benefits include:
- Knowing exactly what’s safe to spend
- Providing built-in protection against impulse purchases
- Growing savings through interest and dividends
Over time, having a savings structure in place can reduce financial stress and make it easier to stay consistent.
Organize Your Finances Today
You don’t need to overhaul your finances to start seeing results. Sometimes, all it takes is getting organized and assigning a role to the money you earn. By opening multiple savings accounts and giving each one a purpose, you’re well on your way to building a solid financial future.
All it takes is working with a financial institution that’s with you every step of the way. First Florida offers both money market accounts and certificates of deposit. Choose the savings vehicles that best fit your needs.
You can also take advantage of our tools that give the information you need, like viewing your accounts or calculating your savings:
Ready to take your savings strategies to the next level? We have you covered. Open an account online and start putting your money to work.