Short Term Savings Advice | Types of Short Term Savings Accounts
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Getting the Most from Short Term Savings

Short term savings is typically quantified as lasting between nine months and three years. There are many reasons you might need short term savings. Some common reasons include: buying a new car, holiday gifts or parties, saving for a wedding, or planning a vacation. In order to save for these expenses most effectively, it’s important to understand your options for different types of savings accounts.

Types of Accounts Suitable for Short Term Savings

When choosing which type of account you’d like to use for storing your short term savings, it’s best to select an option that allows your money to grow, while remaining easily accessible. Some of the best types of short term savings accounts include:

  1. Statement Savings– Although these accounts have low interest rates, they offer great flexibility and have many other benefits. Then, as your money grows, you can gradually transfer it to a money market or other type of account. The benefits of a statement savings account include:
    1. Easy to open
    2. Don’t require a large initial deposit
    3. You can auto transfer funds to your checking account

A drawback of having your savings account tied to your checking/ ATM account is that it can make it tempting for some people to withdraw too often.

  1. Money Market– Money market accounts provide a higher interest payment than a savings account, but require a higher minimum balance. The money in these accounts can be accessed any time as well, making them a popular choice for short term savings.
    1. Premium interest rates
    2. Flexible access to funds

If you have enough funds to comfortably open and maintain the minimum balance requirement, a money market account may be a perfect option for you.

  1. Certificate of Deposit (for more than a year)- CD accounts provide a guaranteed fixed rate for investments, but the money must stay in the account for a given amount of time, otherwise there is a penalty for early withdrawal. Here’s how the penalty fees typically work:
    1. Withdrawal in one year or less- loses 4 months interest
    2. Withdrawal greater than a year- loses 6 months interest

So, while there is greater potential to earn more with a CD account, they should only be used for short term savings that are longer than a year.

Regardless of which type of short term savings account you choose, the best thing you can do for your short term savings is remain diligent. Regularly contributing small amounts to your savings will help it grow over time. And, of course, refraining from withdrawing funds from your savings account is the best way to make sure it’s still there when you’re ready to make your payment on your vacation, car, or wedding. So, don’t let that money burn a hole in your wallet! The payoff will be worth the patience.

Types of Accounts That Should Not Be Used for Short Term Savings

Any account that’s designed for long-term saving and investment should not be used for short term saving purposes. Even though certain accounts may earn a higher return, the penalties for early withdrawal often don’t compensate for the money your account makes for you.

Some accounts that are not suitable for short term savings include:

  • IRA – Individual Retirement Accounts are designed to grow over long periods of time and, therefore, have higher penalties if withdrawn prior to the target end date.
  • HSA – Health Savings Accounts are intended to work in conjunction with your health insurance.

Both of these savings accounts are often set up through employers and, in many cases, feature employer match contributions to help your money grow even faster.

Short Term Savings for Emergencies

Did you know that the average American family has less than $400 saved for emergencies (including access to credit)? Regardless of what type of savings you need, it’s important to maintain an emergency fund for unexpected needs, such as: household appliances, medical expenses, car repairs, and other emergencies. Even if that means that you need to put that dream vacation on hold for a couple years—prioritizing emergency savings is the smart thing to do.


It’s always great to have things to look forward to. The best thing about reaching a place of financial stability is being able to build some short term savings that you can use to finally purchase something fun that you’ve always wanted. By understanding your savings account options, you can make informed decisions that will earn the best return and get you closer to your goals.

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