The Three Types of Savings Accounts Everyone Should Have

How many savings accounts do you have?  My husband and I have eleven!  That may seem like a lot, but it’s the perfect amount for how we manage our money.  All of our accounts fall into three types of savings accounts.

When all of your money is in one account, it’s easy to spend your emergency fund on a vacation, or your vacation money on a new computer.  I would frequently run into this problem and wonder where my money went, until I realized how easy it was to set up different accounts for each of my financial goals.

Why keep money in savings accounts?

There is a lot of debate about whether or not it is wise to keep money in checking and savings accounts instead of investing it.  Generally, if you are saving for short-term goals such as a vacation or a down payment for a house, you want your money to be easily accessible and not subject to market swings.  On the other hand, if you are saving for a far off goal such as retirement, you would want to harness the power of compound interest through investing.

The sky is the limit for how many accounts you could have, but most savings accounts fall into three general categories.

  1. Emergency Fund
  2. Personal Escrow Account
  3. Savings for Big Ticket Items  

1. The Emergency Fund

Most personal finance experts recommend setting aside cash in a savings account to be used in case of an emergency, but the amount that they recommend to save varies greatly.

A general rule of thumb is to aim to set aside three to six months of living expenses.  This amount could be higher or lower for you depending on the following factors:

  • Are you a single or dual income household?  If you lost one income, could you live on one income?
  • Are you self-employed or have a fluctuating income?  You may want to save more as a buffer during times when work is slow.
  • Do you have a mortgage and/or children?  Yup, you guessed it, you should try to save more.

This money should be accessible in case of an emergency, so that’s why a savings account is the perfect place to keep it.

We have used money from our emergency fund to pay for unexpected car repairs and vet bills for pet emergencies.  We make these purchases on credit cards, and then pay the card off immediately with money from our emergency fund.

2. The Personal Escrow Account

A personal escrow account is a dedicated account used to pay for recurring expenses.  Some people have a checking account that they pay all of their bills from, but I like keeping this money in savings, so I am less likely to spend it on other things.

These are the kinds of things I pay for from my personal escrow account:

  • life insurance premium each month
  • car insurance every six months
  • gas, oil, and tolls (EZ-pass)

To figure out how much to put into this account each month, I looked at how much I spent on these things last year, and found the monthly average.  I transfer $150 per paycheck ($300 per month) into my personal escrow account, and withdraw, as needed, whenever those expenses come up.

We pay for other bills (rent, groceries, utilities, etc.) using our joint checking account.  Again, we pay for whatever we can on our credit cards and then pay them off each month with money from our escrow accounts or joint checking.

3. Savings Accounts for Big Ticket Items

It helps me to stay on track with my savings by having a dedicated account for each financial goal.

These accounts may look different for you, depending on what your goals are, but here are some ideas for savings accounts for specific goals:

  • vacation fund
  • Christmas fund
  • gift/wedding fund
  • house/car down payment fund

Prioritize Your Savings

It’s easy to spend your paycheck each month, and wonder where all your money went.  Did you really need to buy those new clothes or spend all that money on a new phone (when your old one works perfectly fine)?  Probably not.

If you prioritize your savings goals, you will avoid the problem of never having any money left at the end of the month.  We try to create an illusion of scarcity by making all of our transfers to our different accounts on payday. It may feel like we never have any money, but we have peace of mind knowing that our financial goals are being met each month.

What kinds of savings accounts do you have?

How do you keep track of different savings goals?  Click through to find out about the three types of savings accounts that everyone should have.  emergency fund | personal escrow

Illusion of Scarcity Worksheet (PDF)

Screen_shot_2017-05-29_at_12.58.38_pm

Download this free worksheet and start paying yourself first.


  • Budget for financial obligations and recurring expenses
  • Prioritize your financial goals
  • Make all your transfers on payday
Powered by ConvertKit
More from Mrs. Farmhouse Finance

June Reading Report

Here are the books I read in June, as well as a...
Read More

Leave a Reply

Your email address will not be published. Required fields are marked *