One of my favorite financial tools is a savings account with sub accounts. It’s a nice way to give each dollar a job. It also helps to be able to see how much you have set aside and for what right from your bank account.
My favorite savings account with sub accounts, by far, comes from Ally Bank. I’ve been with them for more than a decade and I can’t imagine ever switching.
First, let’s cover what makes Ally such a good bank. Then we’ll look at the benefits of a savings account with sub accounts. I’ll wrap up by showing you some of my customized sub accounts.
Ally is an online bank. There are no locations and I’ve never once spoken to someone who works there.
That might sound like a drawback, but I really don’t need to ever go to a bank or talk to anyone, I just need them to hold my money. Most of the money I earn gets deposited directly into my account. I deposit physical checks by taking pictures with my phone. If I need to withdraw cash, I can use my ally debit card at any ATM and they’ll reimburse the withdrawal fee.
So while Ally is not a “full service” bank, it has everything I need. And it destroys full service banks in one area that really counts: interest rates.
Right now, interest rates are pretty high nationally. But you’ll only benefit if you are with a bank like Ally. Today my savings account is earning 3.6%. I checked Bank of America’s website and they are paying 0.01%. The exact rates might change over time, but the gap is always enormous.
To give you an idea of what a big deal this is, here’s how much you would earn on different balance tiers with a 3.6% interest rate vs. a 0.01% interest rate:
|Balance||Yearly Interest @ 3.60%||Yearly Interest @ 0.01%|
It also doesn’t have the terrible account minimums and fees associated with full service banks. Giving all those factors, plus the very nice setup that they have for sub savings accounts and they’re a pretty obvious choice for where I put my money.
The Benefits of a Savings Account With Sub Accounts
There are a lot of reason why you might want to have cash saved up:
- An emergency fund
- Buying a house
- Home repairs and improvement
- Motor vehicle purchases/maintenance
- Special occasions
- A wedding
The problem is if you have all this money saved up in one savings account, how do you know how much goes to what?
It helps to know how much you have set aside for what. Even if you need to pull from one bucket to help out another, you’ll have to make a conscious decision to take money earmarked for buying a house and apply it to your wedding.
Of course, you could just track this in a spreadsheet, but that has a few weaknesses. First of all you’d have to remember to go back and adjust your spreadsheet every time you moved money around. Second, you’d be seeing your balances in a different screen from the breakdown of how much is assigned to what category.
Having sub savings accounts can also help you with goal setting and planning. You can see how much you need to have saved up, how much you actually have saved up, and how far you have to go.
How to Use Sub Savings Accounts
The main idea here is pretty simple. Ally has some pre-made “buckets” that you can put your money into and you can create new categories if you want to.
The first time you put money in, it will go into your “Core Savings” bucket so you can distribute it to other buckets as desired. Unless you change your settings, future deposits will keep going into core savings. So will the interest that Ally pays you.
Of course, you can change these settings easily. You can choose which buckets Ally will pull from first when you take money out, and which bucket(s) will receive the interest payments. You can also add a goal to specific buckets.
If you have just one sub account with a goal tied to it, you probably want the interest to go there.
Once you get up and running you’ll be able to get a more exact picture of how much you have set aside for what.
My Custom Accounts
Like many other people, I have some money set aside for emergencies, some for home improvement, etc. But I also have a few other categories that I created for myself.
I have a “guilt-free spending” sub savings account for both me and my wife. If either of us ever gets money as a gift, we put it in here. When we get a tax return, we’ll put some of it in here. These accounts are just a way of acknowledging that we don’t have to run every money decision by each other. This is money set aside just for us to spend and we don’t need to worry or feel guilty.
Another category I have is simply labeled “fun.” This money is set aside to bless our whole family with. Valuing experiences over things is something I’ve written about in the post Can Money Buy Happiness? as well as Three Money Lessons From My Hawaiian Vacation. The “fun” category exists so that our anticipating selves can have something to look forward to, something that will be a blast when it happens, and something that our remembering selves can treasure as a memory.
I love my savings account with Ally. It’s so much better than multiple savings accounts and it’s even more convenient than a spreadsheet (and I love spreadsheets). Add in the interest rate that is consistently one of the best available, and you have a can’t-miss financial tool.
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