[Hi all. I’m at FinCon this week, and while I wanted to write a post about it while I’m here, it’ll have to wait until I get back. In the meantime, the show must go on!]
I’ve talked about the importance of “buckets“. These are individual savings accounts that you use for larger or on-going purchases: A car repair bucket, a pet bucket, a travel bucket, etc. These accounts allow you to pay for things that you couldn’t otherwise fit into your monthly plan.
These can be treated like “bills“, in that you pay a little into each of these accounts every month, so that when you need the money, no credit cards are needed.
Buckets are amazing for peace of mind too. Over time, as your buckets can fill up, it is such a relief to look at, say, your car repair bucket and know that you’ll have the money when inevitable need comes up.
Imagine that for multiple areas in your life, and you can see how buckets can really help with the emotional side of managing your money.
As for where you house these “buckets”, you have a few options.
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Most banks and credit unions will allow you to create new accounts for free these days. Once you’ve established a relationship with them, you don’t really need any further vetting, especially for an account that’s not really going to earn anything in the way of interest.
So you could open savings accounts in the same institution where you have your checking account.
There are a number of advantages to this. You already have an account there, so you won’t need to sign up for anything new. On top of that, transfers are instantaneous, so you can move money between your checking account and your buckets (or intra-bucket) whenever you want.
But that could also be seen as a drawback. When you can do something instantaneously, it allows for more impulsive behavior. So if you’re the type of person who might be prone to raiding your buckets, you might not want to do this.
Online savings account
Or you could set up buckets at a different institution, purely for the purpose of holding your buckets.
There are many online-only institutions these days that are specifically good for this purpose. They offer minimal functionality (no debit cards, no branches, etc.) but that’s not what you need. They are almost always free, and they usually offer a higher interest rate.
Some popular online savings accounts (not an exhaustive list):
Transfers between your checking account and your buckets take 2-3 business days, which isn’t great if you need your money in a hurry, but in most situations, you wouldn’t need that. And as I mentioned, the “cooling off period” can be beneficial.
After considering all of the evidence, I’ve determined that it doesn’t matter where you put your buckets, as long as you put them somewhere.
You could even use a collection of envelopes and put cash in them, if you’re really diligent and not impulsive.
But if you use an institution, you just want to make sure that you’re not charged any fees for your account, so transfer fees, no minimum monthly balances, nothing like that. Buckets should be free, so you can make as many as you need.
If you’re curious, I create my buckets using an online savings account. When I set this up years ago, the online accounts were earning much higher interest rates, and it wasn’t free at my bank to create multiple accounts, so it was an easy choice. Would I do it the same way today? Probably.
But enough about me: where do you put your buckets?