When it comes to managing finances and securing a financial future, one essential tool stands out — the savings account. It’s the tried-and-true method for setting aside money, creating an emergency fund, and working towards long-term financial goals…
But how many savings accounts should you have? Is it wise to diversify your savings across multiple accounts?
In this comprehensive guide, we will explore the importance of having a savings account in Australia, discuss the optimal number of accounts for future-proofing your wealth, and look into the feasibility of programming these accounts for specific financial plans.
Savings Account
Before we dive into the ideal number of savings accounts, let’s emphasise why having a savings account is crucial for effective financial management in Australia.
Emergency Fund
A savings account serves as the foundation of your financial security. It allows you to build an emergency fund to cover unexpected expenses like medical bills, car repairs, or home maintenance.
Financial Goals
A savings account enables you to set and achieve financial goals. Whether you’re saving for a down payment on a house, a dream vacation, or your child’s education, having a dedicated account makes it easier to track your progress.
Interest Earnings
Most savings accounts offer interest on your deposited funds. While interest rates may vary, your money can grow over time, providing you with additional financial security and potential income.
Peace of Mind
Knowing that you have a savings account can provide peace of mind. It acts as a safety net during challenging times and empowers you to make financial decisions with confidence.
How Many Savings Accounts Should You Have?
Now, let’s address the burning question: how many savings accounts should you have? The answer depends on your financial goals, but the following are some scenarios to consider.
Basic Savings Account
Every individual should have at least one basic savings account. This account serves as your emergency fund and is easily accessible in case of unexpected expenses.
Separate Accounts for Different Goals
Consider opening separate savings accounts for different financial goals. For example, you might have one account for an emergency fund, another for a vacation fund, and a third for retirement savings. This separation makes it easier to track your progress towards each goal.
High-Yield Savings Account
In addition to your basic savings account, you might explore the option of a high-yield savings account. These accounts often offer higher interest rates, helping your money grow more quickly. It can be an ideal place to park your emergency fund or savings for a specific goal.
Joint Savings Account
If you’re in a committed relationship or share financial responsibilities with someone, a joint savings account can be beneficial. It allows both parties to contribute towards shared goals like buying a home or saving for a family vacation. However, establish safeguards such as no withdrawals allowed without the approval of both depositors.
Children’s Savings Account
For parents, opening a savings account for your children can teach them valuable financial lessons and provide a head start on their future. These accounts can be used for education expenses, extracurricular activities, or simply building their savings habits.
Specialised Savings Accounts
In some cases, you may benefit from special savings accounts, such as a health savings account (HSA) for medical expenses or a tax-free savings account (TFSA) for tax-efficient savings in Australia.
Some people may hint about putting all savings accounts in just one bank. Writing for My Money Sorted, finance expert Daniel Brown said it can work as long as you have adequately researched if that bank offers such flexibility. If the bank has a special management app, it might give you a chance to check all your accounts in one pass and transfer funds to which account as needed, say from your regular payroll account, a preset amount is transferred to a specific bank product like an EITF.
Savings Accounts for Specific Financial Plans
Once you’ve determined the number of savings accounts that suit your needs, you can take it a step further by programming these accounts for specific financial plans.
Automatic Transfers
Set up automatic transfers from your primary account to your various savings accounts. This ensures that you consistently contribute towards your financial goals without the need for manual transfers.
Name and Label
Most banks allow you to label or nickname your accounts. Take advantage of this feature to clearly identify the purpose of each account. For example, you might label one account as “Emergency Fund” and another as “Dream Vacation.”
Budgeting Tools
Use budgeting tools and apps to allocate a portion of your income to each savings account based on your financial goals and priorities. These tools can help you stick to your savings plan.
Regular Review
Periodically review your savings accounts to track your progress and make adjustments as needed. Life circumstances and financial goals can change, so it’s essential to stay flexible.
Emergency Fund First
Prioritise funding your emergency fund before allocating money to other savings goals. Financial experts often recommend having at least three to six months’ worth of living expenses in your emergency fund.
Conclusion
Savings accounts are the cornerstone of financial management and wealth building in Australia. They provide a secure place to stash your money, earn interest, and work towards your financial goals. While the number of savings accounts you should have depends on your unique circumstances and goals, it’s generally advisable to have at least one basic savings account for emergencies.
For those with multiple financial objectives, separating your savings into different accounts can help you stay organised and focused. High-yield savings accounts, joint accounts, and specialised savings accounts can also play important roles in your overall financial strategy.
Remember that programming your savings accounts for specific financial plans, automating transfers, and regularly reviewing your progress are key to achieving your goals. By following these principles, you stand a chance of building a secure future.
DISCLAIMER: This article is for informational purposes only and does not constitute financial advice. QUICKLE has no working relationships with any bank.
