Short-Term Savings: Which Accounts Work Best?
We all have financial goals we want to achieve one day. Whether it’s taking a well-deserved vacation or securing your golden years, how you save is just as important as how much you put aside. Different goals require different tools and tactics. For example, retirement planning relies heavily on tax-advantaged accounts and long-term investments. But what about short-term goals – those that you hope to achieve within two or three years?
Accounts for Short-Term Goals
Financial institutions offer a variety of accounts to help you save money. Three of the most popular and widely accessible are traditional savings, money market, and share certificate accounts.
Each option provides varying features, benefits, and limitations. By understanding how these accounts work, you can choose the best option(s) to achieve your savings goals.
Traditional Savings Accounts
Most financial institutions will require you to open a traditional savings account. While these accounts do earn interest or dividends, the returns are generally minimal compared to other options. The greatest appeal of a traditional savings account is its flexibility.
- Low Minimum Balance: Most traditional savings accounts have low or no minimum balance requirements.
- ATM Access: If you don’t have an active checking account with a debit card, you can use an ATM card to access the money in your savings account.
- Quick Transfers: You can instantly transfer money from your savings into other accounts, such as a checking account, via online or mobile banking.
Traditional savings accounts are an excellent option to keep your “savings” separate from the spending money in your checking account. Putting money aside in this account ensures you don’t accidentally or frivolously spend the funds earmarked for financial goals.
Money Market Accounts
As your savings balance grows, it’s wise to consider a money market account. These accounts offer similar flexibility to a traditional savings account but earn significantly more interest or dividends. A key feature of money market accounts is that earnings are tiered, meaning you will receive higher rates as your balance increases.
To illustrate how tiered rates work, review the following example:
| Balance | APY |
| $0 – $999.99 | 0% |
| $1,000 – $2,499.99 | 1.00% |
| $2,500 – $9,999.99 | 1.75% |
| $10,000 – $24,999.99 | 2.50% |
| $25,000+ | 3.25% |
While each financial institution will have its own tiers and rates, you can see how higher balances earn more. If you make a withdrawal and your balance decreases, you’ll earn a lower rate. In addition to tiered earnings, other noteworthy features include:
- Limited Withdrawals: Most money market accounts will restrict how many withdrawals you can make per month, typically around six.
- Quick Transfers: Like traditional savings accounts, you can instantly transfer funds from your money market account into your checking (or other accounts) via online or mobile banking.
- Minimum Balance: Money market accounts often have a minimum balance requirement to earn interest or dividends. In the example above, if your balance falls below $1,000, you will not earn interest until your balance is brought back up over the minimum threshold.
The higher earning potential and flexibility of money market accounts make them ideal for short-term savings goals. They are also commonly used by members to house their emergency funds since transfers and withdrawals are instant.
Share Certificate Accounts
If you’re looking to maximize the returns on your money, look no further than a share certificate account (commonly called a certificate of deposit). These unique accounts lock up your money for a designated timeframe called a term. In exchange for locking up your funds, you earn significantly higher returns.
Terms and rates will vary by institution, but they will typically be displayed in the following manner:
| Certificate Term | Dividend Rate |
| 1 Year | 2.00% APY |
| 2 Years | 2.75% APY |
| 3 Years | 3.50% APY |
| 4 Years | 4.25% APY |
| 5 Years | 5.00% APY |
Due to the higher earning potential of certificates, they are a popular savings tool among investors of all ages. Some key features include:
- Organization: You can maintain several certificates to keep your money and financial goals in sync. For example, you might have a 1-year certificate with money for a family vacation next year and a 3-year certificate you plan to use toward a down payment on a new car in the future.
- Flexible Terms: Most financial institutions have certificate terms ranging from six months to five years – allowing you to choose the timeframe that best matches your financial goals.
- Limited Access: Generally, you cannot withdraw money from a certificate without incurring a penalty or fee (usually a portion or all the interest earned to date).
- Minimum Balance: Share certificate accounts often have a minimum deposit requirement, such as $500 or $1,000.
At first glance, it might appear that locking up your money for a set timeframe is a disadvantage. However, this tactic provides two significant benefits: First, certificates, by nature, force you to save. Since you cannot access the money, you’re unable to spend it accidentally or frivolously. Secondly, the dividend rates are fixed, meaning they will not change during your term. If the economy turns downward and rates decrease, you’ll continue to earn your higher rate until the certificate matures.
Choosing the Right Account(s) for You
Maximizing your savings in the short term doesn’t require you to pick one account over the other. Instead, you can use a combination of accounts to achieve your goals.
For example, you might have a couple of share certificates earmarked for specific goals down the road. Then, you can keep the rest of your funds in a higher-earning money market account to cover any unplanned expenses.
When deciding which account(s) will work best for you, ask yourself a few questions:
- Do I need to be able to access this money instantly?
- How much time is required for me to reach my financial goals?
- How will I keep my savings organized and prevent accidentally spending this money?
We’re Here to Help!
As a member of the credit union, you have access to a variety of savings tools and account types. Whether it’s the flexibility of money market accounts or the higher earning potential of certificates, achieving your short-term savings goals can be simple with a bit of help.
Please stop by any of our convenient branch locations or call 801-451-5064 to schedule an appointment. Our team will be happy to review your current savings plan and help you determine which account or accounts will work best for you.