In our household, we recently made some changes in where we keep our savings that I thought might be of interest.
Saving for specific purposes
Of all the financial moves we’ve made over the years, one of my favorites was the decision to set up separate savings accounts for specific needs (and wants). If I remember correctly, it was prompted by our first semi-annual property tax bill that we received after buying our first home in the Chicago area. It was for such a large amount of money that I thought one of our kids had been kidnapped and this must be a ransom note. I guess you could say it was a ransom note, but it wasn’t one of our kids who was being held hostage; it was our home.
That was the catalyst for a new habit that has served us extremely well — making monthly transfers from checking to savings of one-twelfth of the annual amount for each of our periodic bills and expenses. In addition to our property taxes, these items initially included our annual premiums for life, auto, and homeowners insurance, as well as vacations — expenses that occurred sometime throughout the year but not every month.
Eventually, that list also came to include Christmas gifts, a vehicle replacement account, and an account where we’ve been saving for a special trip to celebrate our 20th wedding anniversary (later this year!). We also keep our emergency fund in a separate savings account. While home and vehicle maintenance are periodic expenses, we let those budgeted amounts build up in our checking account because we tend to spend some of that money almost every month.
Balancing the benefits
For a long time, we used Capital One for our savings. When banks were paying .01% interest, Capital One’s 1% rate was attractive. Plus, the online bank allows customers to set up multiple accounts, each one named for a specific purpose. That was one of my favorite benefits. I really liked being able to log in and see how much we had set aside for this or that. (Joseph listed several other online financial institutions that offer this benefit in his article, Using Multiple Accounts to Reach Your Savings Goals.)
More recently, as rates headed higher, we noticed that Capital One had a money market account paying 2%. However, it required a $10,000 balance and did not allow for multiple accounts. Still, the rate was attractive enough that we transferred some of our savings — our emergency fund — to their money market account. Even more recently, we closed all of our Capital One accounts and transferred all such savings to a Vanguard money market fund yielding nearly 2.5%. In addition to the better rate, this move also gave us one less account to keep track of since we already had an account at Vanguard.
I miss the benefit of easily seeing how much we have saved for specific purposes, and it’s more work to keep a spreadsheet that splits out how much of the total is earmarked for each specific purpose, but we felt it was worth it because of the better yield and simplification of our finances.
How do you manage savings in your household?