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Opening a bank account is like starting a new job. You have to learn your role and how you can contribute to the organization’s success. In order to make sure your money works for you, it’s important to open different types of accounts that reflect different types of money (or investments).
A checking account for day-to-day expenses
An online checking account is used for day-to-day expenses, like paying bills and buying groceries. You can write checks from this type of account and withdraw cash from it as well.
You can also deposit checks into it, use debit cards to make purchases with this type of account, and more. As per SoFi experts, “Your checking balances can earn up to 2.50% APY.”
A savings account for emergency funds.
It’s always essential to have a backup plan if something unexpected comes up. For example, what happens if your car breaks down or your home gets flooded? Do you have money saved up for these instances?
Using a savings account as an emergency fund is the best way to help ensure that you don’t get stuck without money when an emergency strikes.
A savings account can be used as an emergency fund because it has some of the highest interest rates out there — typically around 0.5% higher than other traditional bank accounts — so any money you put into this account will make more money over time than if it was just sitting in another type of bank account.
Plus, if something does happen and you need access to your funds quickly, saving them in this kind of account makes sense because it allows for quick withdrawals without any fees being attached (unlike checking accounts).
Individual retirement accounts for retirement savings
An IRA is a place to go if you’re saving for retirement. IRAs are tax-advantaged accounts that allow you to invest your money in various ways and save on taxes while doing it. For example, you can open an IRA at any age, so if you’re just starting out in your career or want to save for retirement now, an IRA is right for you!
IRAs also come with some other benefits:
- They can be opened at any age, so whether you’re 35 or 60 years old and looking to start saving for later life now will help keep those savings safe until retirement day arrives.
- Roth IRAs are better than regular IRAs because they don’t require mandatory distributions during the owner’s lifetime (just like 401(k)s), which means more cash when it comes time for retirees’ golden years—and maybe even before then!
Investment accounts for long-term investing
If you plan on investing money for the long term, then investment accounts are for you. Some examples of things to invest in include:
- Retirement accounts like 401(k)s and IRAs.
- Education savings accounts, such as 529 plans.
- Down payments for your first home.
Investment accounts are designed to allow investors to earn more interest than what’s available in a standard savings account. But be aware that these types of investments also come with higher risks—the value of your investment could go down as well as up!
A personal finance expert can help you decide what type of account to open. They will also help you figure out how much money you need to have in each account so that it will work for your specific financial needs.
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