Inside: Learn how to build a better budget and successfully save by using multiple savings accounts.
Have you ever tried saving money for something big, setting up saving goals? Maybe you want to pay cash for a car, go on a nice vacation, or save for the downpayment on a house. Those things are great and it is easy to put a line item for those in your budget.
When you look at your bank accounts, do you feel like you are making progress on those goals?
Yep. I’m talking about feelings. Not numbers (as much as I like cold, hard facts and numbers).
Your head thinks, “Yes, we’ve been doing well saving for a new roof.” Yet, looking at a single lump-sum savings account balance may not leave you with a confident gut feeling.
Despite my number-loving soul, I am here to tell you that sometimes feelings are a better way to go.
Feelings, or call it money psychology, are why a debt-snowball works better for many people than the often mathematically superior debt-avalanche.
When it came to saving for larger purchases, for years we did the lump-sum savings account and “knew” whether we had enough money (or not).
Then, when we paid the bill it kinda stung. We saw the bottom-line of our savings drop and, even though the expense was planned, it was depressing to watch the money disappear.
Then, a few years ago I realized our bank offered supplemental savings accounts, also known as savings sub-accounts, and our approach to saving money changed.
What is a savings sub-account?
A savings sub-account is an additional account you can use to save for specific goals.
Different banks use different terms for these. You may see them listed as supplemental savings accounts, savings sub-accounts, or savings accounts you can name.
Why use multiple savings accounts?
The purpose of using multiple savings accounts is to set up separate money buckets. They are perfect for saving for bigger ticket items.
Want to save for a nice vacation? Set up a savings sub-account and name it “Vacation Fund” or “Barbados”, or whatever you want.
Need to save for a new furnace? Create a “Furnace” savings account.
The same goes for saving for a new car, house downpayment, new carpet, or whatever is on your plate. The idea is to separate out these savings so you can watch your goals get closer. It also keeps your car money separate from the vacation fund.
The best part is that when it is time to go ahead and take that vacation or replace the furnace, it honestly doesn’t “hurt” as much to see those funds disappear. Why? When one goal is achieved and paid for, it doesn’t feel like you are at the same time taking money away from your other goals. Paying for that car didn’t take money out of the vacation fund.
How to set up savings sub-accounts
So, how do you set up multiple savings accounts? Chances are your current bank already offers this service. If it isn’t obvious on their website, give them a call and ask. If they don’t offer this service, there are other banks that do.
A few of the banks that offer some form of savings sub-accounts include:
- Alliant offers up to 19 supplemental savings accounts that can be named.
- Discover also offers multiple savings accounts.
- Ally offers multiple savings accounts that can be named. Here, they don’t seem to refer to them as sub-accounts.
- Capital One
- USAA allows members to have multiple accounts, but for security, there is a limit to the number you can open online. Once the limit is reached, you may have to call and set up additional accounts over the phone.
Decide on savings goals
Decide on which savings goals you would like to have separate accounts for and open accounts for them. Not sure? Start with just a couple, maybe a separate account for your emergency fund and one for a vacation.
Other ideas include saving for
What do we currently do? We currently have separate accounts for each of our children, primary savings, emergency savings, and accounts for property taxes, car, and furnace.
Figure out your numbers
Next, you need to decide how you will meet your goals.
If you choose to save for something like a car, then you’ll want to see how much money you can afford to contribute towards that goal each month. Let’s say you want to save $18,000 towards a car you know you’ll need in two years. That comes to 18,000/24 = $750 each month you would transfer to your “Car” account.
If your budget already has you contributing $100/mo towards a vacation fund, then you will start transferring that $100 each month to your actual “Vacation” savings account.
Most savings accounts only allow six transfers per month. So, if you have a primary saving account you are transferring money from, you may need to make some changes. In our case, we now deposit paychecks to our checking account and do all our transfers to savings accounts from there.
You’ve set up your sub-accounts and now you need to figure out how to get money to them each month.
Does all the transferring sound too bothersome? Automate it. Not only does it make it easier to save, but it takes out the human element of procrastination.
We’ve set up automatic transfers from checking to our supplemental savings accounts to occur about a week after paychecks are deposited. The money moves without me even thinking about it.
The best part? Each month I check our accounts and I see our goals get closer to being reached. When property taxes are due, I can write the check and not think that it is setting us back in trying to save for a newer car.
Yes, the numbers all work out the same as with a regular budget. Despite that, you’ll likely find that this savings method is more successful all thanks to the psychology behind the process.