On of my most commonly asked questions is “What are the best bank accounts for XYZ?” While there is no one-size-fits-all when it comes to personal finances, it can be helpful to have an idea of what other people are doing in order to create a plan or system of your own.
The types of bank accounts you have will help you organize your finances in a way that works for you. For me, too many accounts can be overwhelming. I don’t like to have my money spread out in a million different places; but that is just me. I have friends who have a bank account for each savings goal they have, or an account where they put money to pay each type of bill.
How you organize your finances is an entirely different topic; however, the types of accounts you use is a critical piece of the organization puzzle.
Less is More
A general rule of thumb when it comes to setting up your accounts is to keep them minimal at first. Accounts can (and will!) add up over time; whether it be opening up new credit cards, or a new 401(k) when you change jobs. The natural progression of life leads to naturally adding more accounts into your portfolio, so it is in your best interest to start small with that in mind.
I lump my accounts into 4 main categories: Everyday Money, Inconvenient Savings, Investments, and Retirement. As of now, I don’t have many different accounts within these categories, but I know over time I will add to them. Having 4 categories simplifies it all because each category serves its own purpose:
Everyday Money: This is my checking account. I use this to pay bills, pay rent, pay off my credit card, etc. This is where my direct deposit hits and the main account where money flows in and out of.
Inconvenient Savings: This is where I store my emergency fund and my savings for shorter-term goals (right now I am saving for a house!) This is money that is not easily accessible to me; if I want to withdraw it, it requires effort and thought. This lives in a high-yield savings account.
Investments: These are exactly what they sound like; my investment accounts. I invest weekly and I follow a long-term strategy. This is money I do not touch, regardless of the economic environment.
Retirement Accounts: I’ve switched jobs a few times, and recently I consolidated my accounts. Now, I have a 401(k) with my current employer, and and IRA that holds the money from my previous 401(k)s.
The goal is to have enough accounts to effectively reach my goals and ensure that my money is working for me, without having way too much going on that it is too hard to manage. This is a fine balance and I have found a really good cadence.
My Accounts
Here are the actual accounts/providers that I use. Keep in mind, what I use may not be available in your area, and it also may not be the best account or bank for your life. Remember, this is not financial advice, and any changes to your finances you make as a result of this post are at your own risk and your own free will. Always remember to do what is best for you!
1. Everyday Money: Bank of America Checking Account
This account with Bank of America serves its purpose; there are plenty of branches and ATMs in my area for me to easily access cash and deposit checks whenever I need to. It was my first bank account and I have had it literally forever! All of my money flows into and out of this account. I treat it as the main repository for my income and spread it out to my other accounts as needed.
2. Inconvenient Savings: Capital One 360
This Capital One account is a high-yield savings account: a savings account that offers a higher interest rate for storing your money. This is key for housing emergency money or just your regular savings because your money literally earns money on itself, with no risk. A regular savings account generally earns about .2% in interest annually (which translates to like, 10 cents a month). A high-yield savings account can earn up to 2.5% in interest annually, which based on how much you have in there, can be upwards of $100 A MONTH! Last month, I earned $70 in interest in my Capital One account. Tons of banks now offer high-yield options, so do your research and find the right one for you.
3. Investments: STASH and Fidelity
I have brokerage accounts (a fancy name for investment account) through both STASH, which is a robo-advisor, and Fidelity. I love using STASH because it is so easy to invest straight from my phone; they have so many different options and make it simple, even for the most beginner investors. I also have an account with Fidelity that I have had for a long time, which invest in far less often.
When it comes to choosing investment accounts, it is important to keep in mind how often you plan to invest, the types of services you want to have, and your comfort level with using an app like STASH vs. working with a large, established corporation like Fidelity (or Vanguard, or T.Rowe, etc etc). Most companies like Fidelity or Vanguard offer very similar products and services.
4. Retirement: Company 401(k) and T.Rowe Price Roth and Traditional IRAs
My retirement accounts have become more complicated as I have changed jobs over the past few years. Right now, I have a 401(k) with my current employer which I contribute money to each paycheck. I will maintain this account for as long as I am employed there.
I also recently rolled over my previous 401(k)s from prior jobs into a consolidated IRA account with T.Rowe Price, which has been an excelled provider. They have a very easy-to-use dashboard to keep up with my accounts, and their customer service is amazing! With T.Rowe, I actually have 2 IRAs, both a Roth and a Traditional. This money is my retirement contributions from prior jobs rolled over into two accounts, which I plan to use as a “dump” account each time I change jobs for all of my retirement money.
The reason I have both a Roth and Traditional is because (this is something I recently learned) even if you contribute to a Roth 401(k) with your employer, and you receive an employee match, those match dollars are actually considered Traditional. A Roth account is post-tax dollars, while a Traditional is pre-tax dollars; the difference is just the timing of when you pay tax on the money. When I rolled over the accounts, I had to separate into two separate accounts; one to hold my Roth contributions, and a Traditional to hold my employer-matched contributions. Confusing? Yup!
In Closing
Figuring out how you want to organize and store your money can be a daunting task. If you’re struggling to find the right balance, start by grouping your money into my 4 categories and go from there. There are benefits to having different types of accounts, and utilizing the right ones can actually make you more money long term, simply for putting your money there. Just remember, before you open (or close) any accounts, do your research and make sure it is the right account for you!
xx
Michela
