How to Use Savings Accounts for Short-Term vs. Long-Term Goals

Why savings accounts are a smart foundation for your goals

Understanding short-term vs. long-term savings

Knowing whether your goal is short-term or long-term can help indicate which savings account type or strategy may be best for you.

Short-term savings goals typically fall within the 0–3-year timeframe, in which stability, liquidity and easy access are usually top priorities. In practice, this could be an emergency fund, home repairs, travel, taxes or other short-term expenses.

Long-term savings goals, on the other hand, are typically anything in the 3+ year timeframe, in which higher yields and compounding growth over time tends to be more important. These goals could be a home down payment, education or a retirement buffer.

Types of savings accounts

Before opening a savings account, it’s important to understand that there are several different saving account types. These are a few of the most popular types of and their advantages:

• Traditional savings account: A great starting point for everyday saving. This type offers modest interest rates and easy access through digital banking and ATMs, though some banks may set limits on the number of monthly withdrawals. They’re perfect for emergency fund savings or short-term needs.
• High-yield savings account: These accounts typically offer higher annual percentage yields (APYs) than standard options. The trade-off is often a higher minimum balance requirement or limited monthly withdrawals.
• Certificate of deposit (CD): CDs offer fixed rates for fixed terms, typically in the 6-month to 5-year range. Because your money stays locked in until maturity, banks can often provide higher rates than standard savings accounts.
• Money market account: A bridge between a checking and savings account, this pays competitive interest while allowing limited withdrawals. In some cases, the APY increases as your balance grows.
• Health savings account (HSA): If you have a high-deductible health plan, an HSA lets you set aside pre-tax dollars for qualified medical expenses. While not a traditional savings account, an HSA can serve as both a short-term and long-term savings tool to cover near-term healthcare costs or to help offset future medical expenses in retirement.

Best savings accounts for short-term goals

Selecting the best savings account for short-term savings goals largely depends on your own personal needs. Since most short-term goals require easy access to your money, here are a few to consider:

• Traditional or high-yield savings accounts for easy access and flexibility.
• Health savings accounts for medical expenses.
• Money market accounts for higher growth potential and limited access.

A good short-term savings account should give your money with some growth opportunities and/or other financial benefits, provide stability and let you access your funds when you need them. 

Best savings accounts for long-term goals

When choosing a savings account for long-term goals, growth potential is typically a higher priority. Since this is money that you won’t touch for several years, compounding interest can make a significant difference. Consider the account types below for higher earning potential alternatives that will help work toward your long-term savings goals:

• High-yield savings accounts with competitive APYs.
• Money market accounts for blended access and growth.
• Certificates of deposit (CDs) for guaranteed returns over a fixed term.

Regardless of whether you are working toward a short-term or long-term savings goal, regular contributions can be an extremely effective way to increase your earnings and saving potential. 

How to balance multiple savings goals

Managing different financial goals can be complicated. To make it easier, start by labeling each saving goal as short-term or long-term. For example, an emergency fund, car maintenance or holiday expenses could all be considered short-term goals. On the other hand, down payment for a future home, retirement or other larger investments may be considered long-term goals.

Once you have your priorities set, start exploring the best alternative(s) for your situation.

It’s also worth noting that financial situations, age and other various factors may play a role in the saving strategy and account type you decide to choose. Many comprehensive financial strategies will incorporate multiple types of savings accounts tailored for each type of goal. In short, there’s no one-size-fits-all savings account.

Tips to stay on track

While selecting the correct type of savings account is a key to success, here are a few additional tips to keep your savings on track.

• Set up automated deposits or transfers to keep your savings contributions consistent and effortless. This works particularly well if you want to take advantage of compounding interest or just grow your savings account regularly.
• Keep unrelated goals separate and avoid dipping into the wrong funds.
• Regularly monitor your APYs as rates shift.
• Revisit your goals once a year to make sure they’re still working for you.

Final thoughts

The best savings strategies blend structure and flexibility to keep your money working hard toward your savings targets. Be sure you keep short-term funds easily accessible and take advantage of higher-yield opportunities for long-term goals.

To get a better idea of what kind of accounts can fit your goals, explore the full range of savings account options that Associated Bank offers.