With so many savings account options, it can be difficult to know which one will help you meet your personal financial needs. Consider your short-, mid-, and long-term savings goals to choose the best option or options for you and your family.
- Short-term financial goals take less than a year to achieve. Examples include taking a vacation, buying new furniture, paying off a specific debt, or making minor home improvements. With short-term goals, you don’t have time to ride out the market, so investment accounts may not be a good fit.
- Mid-term financial goals should take three to 10 years to accomplish. Examples include saving for a down payment on a house, buying a car, paying off student loans, or starting a business. While there is more time to save for a mid-term goal, you still want to avoid too much risk.
- Long-term financial goals take longer to reach and may take more money. Examples include buying a home, saving for a child’s college education, or planning for retirement.
From savings accounts to retirement plans, there are many account options to help you save.
With savings accounts, you may earn a small amount of interest. It’s easy to withdraw money from a savings account, but not easy enough for daily spending.
Money Market Accounts
Money Market accounts offer a higher interest rate, and may require a minimum balance or limit the number of transactions per month.
Certificates of Deposit (CD)
With a CD, money is held for a specific amount of time—several months or a few years. CDs usually offer higher interest rates than savings accounts and can be safer than other types of investments.
529 College Savings Plans
A 529 College Savings Plan allows you to make non-deductible contributions. Earnings are not taxed if they are spent on qualified education expenses such as tuition, fees, books, supplies, special needs, and some room and board. 529 plans also cover up to $10,000 in tuition expenses at private, public and religious K-12 schools. While 529 plans are often used to save for a child’s education, you can also open one for yourself.
Coverdell Education Savings Accounts (ESAs)
Coverdell ESAs allow annual contributions up to $2,000 to the beneficiary. The contributions can be invested tax-deferred and the proceeds withdrawn are tax free when used toward designated educational purchases. In addition to college tuition, ESAs may be used for K-12 expenses in certain situations.
Your Company’s Retirement Plan
The easiest way to save for retirement is participating in your employer’s retirement plan, such as a pension plan, 401(k), 403(b), or 457 plan. Many employers offer a company match; if you’re not taking full advantage, you’re leaving money on the table.
Individual Retirement Accounts
If your employer doesn’t offer a retirement plan, there are two types of IRAs to consider.
- A Traditional IRA is a government approved, tax-deferred savings program that enables you to set aside a portion of your income each year for the purpose of investing in your own retirement.
- A Roth IRA is a nondeductible account that features tax-free withdrawals at the required age and for certain distribution reasons after a five year holding period.
Even if you have a company retirement plan, you might consider supplementing it with an IRA.
When you deposit money into a savings account, your financial institution will typically pay you a percentage of your balance to keep your money with it — this is called interest.
The interest you earn each year is added to the total amount in your account, so the rate at which your savings grows increases over time. This is compound interest, and you can use it to your advantage when saving for the mid- and long-term. The higher the interest rate and the longer you leave your money in an account, the more interest you earn.
With your savings goals in mind and a good understanding of the account options available, it’s time to reach out to your financial institution to put a savings plan into action.
Opening a First Interstate savings account online is easy and secure. Or, stop by any First Interstate Bank branch, and one of our bankers will assist you in opening your account.
Our team members will work with you to review your priorities and options and to make an informed decision on which savings plan is right for you. Find a representative to get started today.