These Are the 4 Essential Savings Accounts You Need

Money jars filled with American currency.
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It’s probably been drilled into your head from the time you started working that you should be saving money. And it may go back even further than that, if you often heard your parents talk of the importance of savings. But getting started with saving is a lot simpler said than done, especially if you aren’t sure what to save for or where to save.

While everyone’s finances are different, there are four types of savings accounts that everyone should have. These accounts will help you achieve everything from weathering the storm of a financial emergency to retiring comfortably.

What Are the 4 Savings Accounts Everyone Should Have?

There are four savings accounts everyone should have in their financial plan: an emergency fund, short-term savings, long-term savings and a retirement account. While you may have more than the four listed below, these are the best accounts to get started with.

1. Emergency Fund

The first type of savings everyone needs is an emergency fund. This type of account serves two primary purposes. 

  1. Cover unforeseen expenses: First, your emergency savings can help you pay for any unforeseen and emergency expenses, including car repairs, medical bills and more.
  2. Cover loss of income: If you lose your job, you emergency fund should be big enough to cover three to six months of living expenses.
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Unfortunately, most Americans don’t have nearly enough set aside for emergency expenses. In fact, a 2022 report from the Consumer Financial Protection Bureau states that close to 25% of Americans have no emergency savings at all. Since those people are more likely to be in debt, as well, one emergency or job loss could land them in serious financial trouble.

And while unemployment benefits can help people get by after a job loss, the amount often isn’t enough. And not all employees are eligible for those benefits.

2. Savings for Short-Term Goals

The next type of savings you should have is savings for short-term goals. You can use this account to save for expenses that will come up within the next year or two. Examples might include a vacation, the down payment on a new car or a new wardrobe.

When deciding how much to save in your short-term savings fund, run the numbers on the goals you’d like to reach in the next couple of years. An easy way to figure out how much to save is to divide the total cost of a certain item by the number of months you have to save for it.

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For example, say you want to go on vacation in 12 months and you know it will cost about $2,400. When you divide $2,400 by 12, you know you’ll need to save $200 per month to reach your goal.

3. Savings for Long-Term Goals

While you’re saving for your short-term goals, it’s also important to save for long-term goals. It can be more difficult to add these to your financial plan since they’re so far off. But you’ll certainly be glad you did. 

Examples of long-term goals you might save for are those big-ticket items that will take more than a year or two to save for. For example, one long-term goal might include the down payment on your dream home. It may also include buying a car in cash or saving up to start your own business.

It’s more difficult to plan ahead for these goals, but even if you just start putting away a small amount each month, you’ll be well on your way to reaching them in a few years.

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4. Retirement Savings

The final type of savings everyone should have is their retirement savings. If you’re still young, saving for retirement might seem unnecessary. After all, you have decades to do that. But the truth about investing is that the earlier you start, the better off you’ll be. And unfortunately, many people underestimate just how much they’ll need for retirement.

There’s no set amount that everyone should have set aside to retire, which makes it difficult to know how to save. The good news is there are plenty of online retirement calculators that can help to figure that out. You share your desired income during retirement and what age you plan to retire, among other information, and the calculator will tell you how much you should have saved and how much to invest each month to get you there.

Why Getting Started Early Is Important

Say you know you’ll need $1 million to retire and assume a 10% annual return — the average, according to the U.S. Securities and Exchange Commission.

If you started investing at age 25 with plans to retire at age 65, you would only need to invest about $190 per month. But if you waited just ten years to start investing, you would need to invest more than $500 per month to reach your goal of $1 million by age 65.

What Type of Savings Account To Use

One of the most important things to consider when setting up your various savings accounts is where to actually keep the money. Generally speaking, the sooner you plan to use the money, the more accessible it should be. But no matter how quickly you’ll need to access it, you should keep it somewhere it will grow.

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A high-yield savings account or money market account is a good option for shorter-term savings that you’ll need to be able to access quickly once it’s time to withdraw the funds. For longer-term savings, a high-yield account is still a good idea, but consider also putting some of the funds into investments — they may grow faster that way, as long as you invest wisely.

  • Emergency fund: High-yield savings or money market account
  • Short-term savings: High-yield savings or money market account
  • Long-term savings: High-yield savings account, certificates of deposit or investments
  • Retirement account: 401(k) or IRA

Risk vs. Growth

The level of risk you’ll want to take is also an important factor in where you should store your savings. For example, you wouldn’t want to invest your emergency fund — just as the stock market plummets and you lose a large chunk of your savings, you might also lose your job and need to dip into the account. Not only does the money need to be easily accessible, but you also don’t want to take any risks with it.

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On the other hand, with any money you won’t need for several years, you can afford to take a bit more risk. A good rule of thumb is that for goals that are less than three to five years out, such as your short-term financial goals, keep the money in a high-yield, FDIC-insured account. And for those goals that are more than three to five years away, you can keep the money in a taxable brokerage account to help it grow even more.

Retirement Funds

Finally, the best place to save for retirement is in a tax-advantaged retirement account. Many people have a 401(k) plan through their employer, which is a great place to start investing, especially if your employer offers to match your contributions.

If you don’t have access to a 401(k) or want to invest more than the 401(k) annual contribution limit, consider an individual retirement account (IRA).


Saving should be one of the most important components of your personal financial plan. And while it’s not easy to get started saving, the more you flex that muscle, the easier it gets. And the good news is that if you start saving in each of the four funds listed above, you’ll be prepared for any financial goal or emergency.

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Here are some quick answers to common questions about saving money.
  • What are the three types of savings accounts?
    • The most widely-known savings accounts are deposit accounts – including regular and high-yield savings accounts – money market accounts and certificates of deposit (CDs).
      • – Deposit accounts allow you to deposit easily, but withdrawals are more complicated, because they often require a transfer rather than simply using a debit card or check.
      • – Money market accounts are very similar to savings accounts but come with check-writing and sometimes a debit card for easier access to your money.
      • – CDs typically allow a single deposit at the beginning of the term and cannot be withdrawn until the end of the term, unless you pay sometimes-hefty fees.
    • There are nuances to each type of savings account, of course. For example, some deposit savings accounts offer a debit card, and there are no-penalty CDs that allow withdrawals with no fee.
  • Is $20,000 a good amount of savings?
    • Depending on your needs and income, $20,000 could be a good amount in savings. If your monthly expenses are $3,333 or less, for example, a $20,000 emergency fund would be a good amount – possibly even too much.
    • However, if that $20,000 is all you have saved for retirement at the age of 60, it's far from enough.
  • What kind of savings should you have?
    • The four types of savings accounts you should have are:
      • 1. An emergency fund for unexpected expenses
      • 2. A short-term savings account for financial goals you'll reach within a year or so, like a vacation or a down payment on a car
      • 3. A long-term savings account for bigger financial goals, like a down payment on a house or a college fund for your child
      • 4. A retirement account to support you after you stop working

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.


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