What are supplemental savings accounts, and what are their benefits?

A savings account is the cornerstone of many people’s financial portfolios. It’s the perfect place to build your emergency fund, keep fun money for vacations, and save for one-off larger expenses like a car or downpayment on a house. However, having one account for so many different purposes can make financial planning difficult. If you’re using your savings account to save for several goals at once, it’s tough to know exactly how close you are to each one.

This is where supplemental savings accounts come in. These accounts, sometimes also referred to as savings buckets or envelopes, allow you to divide up your savings while maintaining the same great benefits of a savings account. Learn more about supplemental savings and how these accounts can help you organize your finances.

What you’ll learn:

• What is a supplemental savings account?
• How does a supplemental savings account work?
• Uses for supplemental savings accounts
• Are there any drawbacks to a supplemental savings account?

What is a supplemental savings account?

In essence, a supplemental savings account is just another savings account. The number of supplemental accounts you can have varies depending on the financial institution. At Alliant, you can have up to 19. These accounts function the like your regular savings account but are an important financial organization tool.

Imagine this—you have your emergency fund in a high-rate savings account, and now you want to start saving for future expenses, including a new car, a down payment on a house and a vacation. Because these are all short- to medium-term financial goals, a high-rate savings account is a great place to keep your money while saving. However, managing the savings for all three of these, plus your emergency fund in one account, can be difficult to manage. Where does your emergency fund end and your vacation fund begin? How much of your savings is meant for a down payment versus your car fund?

This is where supplemental savings accounts come into play. You can keep your primary high-rate savings account for your emergency fund but open three supplemental savings accounts for each goal—an account for your house down payment, an account for your car fund and an account for your vacation fund. Now, you know exactly how much you have saved for each goal. Many financial institutions, including Alliant, even let you give each account a nickname to help you remember what the money is for.

How does a supplemental savings account work?

At Alliant, a supplemental savings account functions the same as a regular high-rate savings account. You’ll earn the same great rate, won’t pay any extra fees and have access to any other benefits the primary high-rate savings account provides. Supplemental savings accounts exist to serve as an organizational tool for your finances.

Opening a supplemental savings account is simple. While the exact process will vary per financial institution, at Alliant, once you’ve become a member and opened your initial high-rate savings account, you can begin opening supplemental accounts. Some financial institutions may have you formally open additional accounts, while others may split your existing savings accounts into multiple buckets. The result is the same—you’ll be able to easily track and save towards multiple financial goals.

Uses for supplemental savings accounts

There are an endless number of ways to use a supplemental savings account. If you have any financial goal or upcoming purchase that requires saving, a supplemental savings account is a great way to easily track your progress towards that goal. While the exact way you use these accounts is up to you, many people choose to keep their emergency fund in their primary savings account and any other savings goals in supplemental savings accounts.

Here are some common goals supplemental savings accounts are used for:

• Down payment on a house
• New car
• Car maintenance and repairs
• Home remodel
• Higher education
• Vacation
• Wedding
• Any other medium to large purchases

Are there any drawbacks to a supplemental savings account?

One of the best things about supplemental savings accounts is there’s almost no downside to using them. Each supplemental account has the same benefits as the primary savings account, so they truly just help organize your savings better.

The main thing you should keep in mind is that, at Alliant, the $5 minimum balance for a savings account still applies, and you must maintain a daily average minimum balance of $100 to earn interest. So as long as you have this amount in the account while you save for your goal, you won’t face any drawbacks. Once you reach your savings goal and make the purchase, you can rename the supplemental account to reflect a new goal or simply close the account.

If you’re looking for an easy way to organize your finances and make saving towards multiple goals simple, supplemental savings accounts are a great option. Whether you’re looking to save up for a down payment on your dream home, the new car you’ve always wanted or a well-earned vacation, supplemental savings will help you get there.