Before I delve into this topic, let me first say that I am not a certified financial advisor. And, I’m not receiving compensation to discuss these banks. These are just my opinions after doing some basic research.
In the blog post 5 Frugal Ways to Treat Your Family, I mentioned having a “splurge” fund. So many of us forget to set aside that “fun” money. Or, maybe we don’t have a good system for setting it aside. I currently use budgeting software to create a category for the “fun money” fund. For each of my husband’s pay periods, I set aside a percentage for “splurging” and place it in my “fun money” budget category. But what if you don’t have a budgeting software program? What if you want to place those assets in an actual account?
Introduction to the Goal-Setting Account
One possibility is to place your money into a “goal-setting” savings account. I have seen these being advertised lately. As I started researching them, I realized even my main local bank has something similar. These goal-setting accounts allow you to segregate your money into several savings accounts. You can then give these accounts nicknames for the purposes they will serve. So, not only can you can create your “splurge” fund account, but you can also create other savings accounts. This is similar to what I do withy my budgeting software, but you will instead be using an actual bank account to house these funds.
Some examples of the accounts I currently have designated in my shorter-term budget categories include:
- Private school tuition: This is a fee we pay only once per year, but it is a big fee. So, I definitely save up for this throughout the year.
- Vacation: We set aside a percentage each month toward our travel fund. We don’t tend to travel to expensive places so our budgeted amount is a small percentage.
- Splurge fund: The amount we set aside for this is about 2% of our income. We are quite frugal when it comes to entertainment and fun outings.
- Home improvement: There is always something to improve. I don’t do a great job budgeting this category. Something always comes up which costs more than I expected. (And that’s why we have an emergency fund).
- Gifts: We usually try to put a percentage away for this throughout the year. When Christmas gets closer, we have a decent-sized chunk saved up for that purpose.
Those are the main short-term savings classifications I use with my software, but there are many other categories you could use. Here are just a few more ideas:
- Having a baby: Babies are expensive. And, they are worth every penny.
- Buying a car: I don’t know how often the average person buys a car, but we tend to drive our cars until they are no longer safe to do so. I don’t have this set as a savings category, though I probably should.
- Buying a pet and getting ready for a pet: Until I became a dog owner, I didn’t realize that this was such a money drain. (And, most days I think he is worth it.)
Finding a bank with these goal-setting savings accounts.
Since I noticed that my local bank had the option to open these accounts, I decided to see what other banks offered this option. Through the process, I realized that I can earn interest on these accounts through an online bank. When I weighed the benefits of the local bank and the online bank, I decided to go with an online bank. I am rather traditional with my checking account and feel better about having the physical presence of a brick and mortar bank. But, with a savings account, I don’t feel that need. Right now, I am earning a whopping .001% on my savings account at my local bank. It’s a good thing I decided to write this post or I wouldn’t have realized just how dismal my earnings are.
During my research, I found two large online banks which offer multiple savings accounts. Both of these banks are well-known online banks. At the present time, I don’t have any experience with these banks’ savings accounts though I do have an underutilized checking account with CapitalOne360.
The information provided below is accurate as of today (8/28/2015) and can be found on their websites. However, rates can change quickly so do your research if you choose to get an account at either of these banks.
CapitalOne360: With CapitalOne360, you can open multiple savings accounts. At the time of this writing, the benefits include:
- Variable Rate of .75%:
- No fees and no minimums
- FDIC-insured up to $250,000
- Ability to name your multiple accounts whatever you want
Ally: When I looked at their savings account sign-up page, it doesn’t mention multiple accounts. However, the linked page suggests that this is a service Ally provides. One drawback is that there are fees for excessive transfers. You can read about the fees here: Ally Savings Fees. The current benefits include:
- Variable rate of .99%. This seems to be the highest interest rate in online savings accounts.
- No minimums
- FDIC-insured up to the maximum amount by law
My Action Plan Using This Information:
Since I already have an account open with CapitalOne360, I plan to open up a savings account for our biggest purchase, private school tuition. As we save up for this big expense, it would certainly be nice to earn some interest on it. I will probably also move some of our emergency fund into a savings account with CapitalOne360. While I will not get rich from a .75% interest rate, it sure beats .001%. Why even have the 1 at the end of that number? It doesn’t make me feel any better about it. I’m pretty much earning nothing on our savings right now.
For the rest of our budget categories, I will probably stick to using my software to segregate our savings…..at least, for now.
Do you know of any other banks which offer a decent interest rate with no fees or minimal fees? Have you tried using these goal-setting savings accounts? Feel free to share in the comment section below.