I’m a Bank Teller: 3 Reasons You Should Open a Savings Account for Retirement

Bank Teller Working with Customer at Bank Counter in Retail Bank

The typical advice for saving for retirement is to invest in tax-advantaged accounts like 401(k) plans and Roth IRAs. While those are essential, savings accounts are an important addition to your retirement planning.

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GOBankingRates spoke with CJ Pointkowski, assistant vice president of savings products at Navy Federal Credit Union in Vienna, Virginia, to explain the reasons why you should open a savings account for your future retirement, and which kind.

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Savings Complement Retirement Accounts

While every person is on a different financial journey, Pointkowski said, “You should definitely have a savings account to complement your other retirement accounts.”

The type is dependent on your financial needs and plans. To decide what kind of savings will be most useful to you, Pointkowski explained the three main types of savings accounts and their differences:

• Traditional

The benefits of a traditional savings account is that “[m]oney is always available without any withdrawal fees, you have immediate access to it, and it’s a very liquid account.”

He said it’s a great account to put emergency funds in if you might need them in the short term.

The thing to know about this type of account is that “[t]hey typically will pay interest but a lower interest rate than some of the other account options.”

• Money Market Savings Account (MMSA)

These accounts likely will pay higher interest than a traditional savings account but will offer the same liquidity benefits and easy access to funds, Pointkowski said, with one main difference.

“There is typically a minimum account balance requirement not seen on traditional savings accounts.”

Though that minimum will be different at every bank, Navy Federal sets its minimum at $2,500.

• High-Yield Savings Account (HYSA)

HYSAs usually have the highest interest rates for savings, he said, but there could be some restrictions on access to funds and minimums.

“These [accounts] result in a little bit more hurdles to withdraw money at times,” he said. “Your funds aren’t quite as liquid as a traditional savings account.”

These accounts tend to be good options for someone who already has an established emergency fund or traditional savings account.

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For Emergencies and Specific Savings Goals

Pointkowski said that it’s important at any stage in life to have liquid funds for emergency or unforeseen costs, not just for retirement, but you don’t want to keep too much in a savings account with a lower interest rate. The general rule of thumb, he explained, is to have between three and six months of expenses saved in a savings account strictly reserved for emergencies.

However, he added, “Once you’ve built up to that level, it’s appropriate to explore other types of retirement accounts out there so you can have your money working for you at a bit of a higher interest rate,” he said.

You might even have several different types of savings accounts for different purposes. An emergency fund in a traditional account, a vacation fund in a HYSA or MMSA, and of course, retirement accounts.

If you have a set time period in which to save, you might also consider a higher-interest financial product like a certificate of deposit (CD) instead.

“It’s great to complement your accounts with different accounts so you can be well positioned and well balanced to do what you want when you hit those retirement years,” he said.

To Keep Your Funds Liquid and Insured

“The biggest overall benefit of having a savings account when you’re in those retirement years is that you have a chunk of your money that has no term commitment, often no minimum commitment or withdrawal penalty,” Pointkowski said.

Additionally, if you’ve chosen an FDIC-insured financial institution, your funds are federally insured up to $250,000, so a savings account is a perfect place to keep liquid funds you might need in near future.

“We view these as a perfect complement to your other retirement accounts. Your savings should go hand in hand with your other retirement accounts.”

Should You Keep Accounts at Multiple Institutions? 

If the financial institution you already bank with doesn’t have the type of savings account you need, should you consider opening one with another bank, especially if it offers a high APY?

These decisions are up to the individual, however, he said, “What I would suggest when opening a savings account for retirement, or any account, is it’s important to choose a financial institution you want to work with for the long term. You want to find an institution that engages with its members in a way that meets your needs.”

Once a person finds a financial institution that fits their banking preferences, then they can start looking into the specific products/services and rates that they offer, he said.

“Find that institution that meets your needs in totality. Ask, how easy is it to engage with them? Are they member/customer friendly? Do they check all the boxes you’d like checked? Once you’ve established that relationship, you start really diving into their products/offerings.”

Best Practices for Choosing a Savings Account or Bank

When it comes to choosing the right savings account, “[t]he hardest part sometimes is just getting started,” Pointkowski said.

The goal is to find a bank that offers a variety of savings products, where you can talk with someone, such as a financial advisor, who can help walk you through your goals and provide a variety of options, he urged.

“[Financial] goals shift over the course of your life,” Pointkowski said. Thus, having a bank that supports your savings goals with a variety of products on your journey to retirement is essential.

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This article originally appeared on GOBankingRates.com: I’m a Bank Teller: 3 Reasons You Should Open a Savings Account for Retirement