7 best money accounts to have to improve your finances

When I was younger, my mother told me it was extremely important not to spend all the money I made. She wanted me to save money somewhere to be used later for school notebooks, pencils, fees, clothes, etc. She was not educated but understood the importance of saving money for future financial goals. After growing up, I realized that there were several money accounts I should have to help me manage my money and save for important goals.

As my mother taught me, I needed to allocate my income into different money accounts designed for specific financial goals. I learned that if I put all my money in a checking account designed for spending, I will spend all of it. For this reason, I needed another account to hold the money I did not want to spend. That is how I ended up opening a savings account.

Then, I learned that keeping my money in a savings account would not protect it entirely or help me build wealth. I was earning around 0.05% APY, which is normal for the banking industry. But inflation was at 3.5%. Even if I was not spending my money directly, inflation decreased its purchasing power. That is when I opened a CD account and, later, a brokerage account.

In this article, you will learn the 7 best money accounts everyone should have to build wealth.

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Important money accounts everyone should have

My money was unsafe even if it was in a savings account where I was not touching it. That is why I kept asking myself this question: Are there any money accounts I can have that:

Prevent me from spending all my money,
Protect my money,
Come with high returns,
Reduce my taxes, and
Help me build wealth?

The answer to these questions was astonishing. Yes, there are money accounts you can open to manage your money like a pro. These accounts will help you become the master of your money and achieve financial independence faster than you anticipated.

Financial freedom starts with understanding how much you make and how you allocate that money in different accounts designed for financial stability and wealth building.

Some accounts you will learn here will help you minimize your taxable income, while others will simply earn you money or protect your and your loved ones’s overspending habits.

I put this list of 7 best money accounts everyone should have with you in my mind. These accounts helped me turn my life around, and I hope they will do the same for you.

Without further ado, the following are the 7 best money accounts everyone should have.

1. A checking account

A checking account is a deposit you open from a bank or credit union designed for spending purposes. By default, checking accounts do not pay interest.

A checking account allows you to make direct deposits. There are many ways to deposit money into your checking account, which are listed below.

Cash deposit at ATM. Traditional banks and credit unions allow customers to deposit cash into their checking accounts at the ATM using debit cards.

Physical check deposit at the ATM or by scanning it. You can deposit a check into your checking account at an ATM, the same as cash. Most banks, especially large ones, have an option where you can deposit a check into your account using your phone. With this method, you must use the bank’s app and scan both sides of the check. After submitting the check, a portion of the amount will be approved, and the remaining balance will take a few days to appear in your bank account.

Transfer. You can transfer money from your checking account to another bank or someone else’s bank account, and the reverse is also true.

Direct deposit from your job. Most employers offer the option of directly depositing your check into your checking or savings account.

Why do you need a checking account?

Honestly, things can get complicated when it comes to spending and money management. Many people spend more money than they make simply because they lack control.

One great way to be on top of your finances is to spend the money you can afford. That is spending what you have designed to be spent without penalty or fees. Since checking accounts are designed for spending, the account can help you spend exactly what you want and allocate extra cash in other money accounts to earn some interest.

Simply put the money you budgeted into your checking account and spend it as planned.

Note: Most banks have an overdraft fee. So, ensure that you have money in your checking account and do not spend more than you have in the account. This will help you avoid an overdraft fee.

How to pick the best checking account?

Although all banks and credit unions offer check account options, the terms, conditions, and fees associated with these accounts differ from one bank to another.

When choosing the best checking account, look for the one with flexible terms and low to no fees. Use the following tips to help you pick the best checking account.

Pick an account with a minimal deposit.
Do not open a checking account with a bank that charges a monthly fee. You are not earning anything on the account, so you should not pay a fee to keep money in it.
Avoid accounts with high fees (overdraft fee, low account value fee, maintenance fees, etc.)

2. A savings account

A savings account is an account you open with a bank or a credit union. Unlike checking accounts, a savings account earns you a small interest on your savings.

Although the interest you earn on the account is small, it is still better than a checking account, where you earn nothing. A savings account is great for short-term and long-term savings, such as a house or car down payment.

Why do you need a savings account?

Many people never open savings accounts. They think it is hard to keep up with restrictions and monthly contributions. The truth is that you can automate the money into the account and never have to hustle again. The benefits of a savings account outweigh anything from a checking account.

The following are some of the benefits of savings accounts.

The account allows you to save for long-term or short-term goals
Your money is insured for up to $250,000 when you open an account with an FDIC/NCUA-insured institution
You will earn interest on your savings

Keep in mind that a savings account will come with restrictions such as:

A limited number of transactions you can make in the account (at most six withdrawals every month)
Required monthly contributions (many banks require it)
Fees, etc.

How much can you make with a savings account?

Traditional savings accounts do not earn a high interest unless you open a High-Yield Savings Account(HYSA) or have a certificate of deposit, etc. According to the FDIC, the average return on savings accounts for account sizes under $100,000 is 0.45% APY as of November 2024. This return is low compared to how much you can earn on alternative accounts, such as a 12-month CD, where you can earn around 1.81% APY.

How to pick the best savings account?

The main benefit of savings accounts is that they ensure the safety of your capital while earning you a small interest. In addition, they allow you to save money for future financial goals such as a house purchase or travel expenses.

For example, if you plan to buy a house in four years, keeping your down payment in a savings account will be a good idea. The interest you earn will help you grow your account while keeping your money safe.

The best savings account offers flexibility in conditions and terms of use. The same account should also have fewer fees and restrictions and reasonable returns. In addition, you should open a savings account with an institution insured by FDIC or NCUA for credit unions. The standard insurance amount is $250,000 per account and per depositor in case your institution goes bankrupt, according to the Federal Deposit Insurance Corporation (FDIC). At least you won’t lose all your money.

3. An emergency account

One of the most important money accounts everyone should have is an emergency account. This account is so important that it can mean the difference between financial success and financial struggles.

The emergency account is used to save money for emergencies. Life is like a rollercoaster, and emergencies happen without notice. You might drive down the road, get in a car accident, and the hospital says, “You owe us $20,000, due in no time.”

It will be difficult for you to move forward unless you have saved enough money to cover these expenses or some of them. Some people end up declaring bankruptcy, which makes it difficult to finance their projects in the future. Lenders don’t like bankruptcy, foreclosures, collections, or anything related to these events.

Have an emergency account to ensure you are safe and prepared for emergencies, such as a job loss or expensive medical bills.

Should you invest your emergency fund for better returns?

How much should you have in your emergency account?

Emergencies come in all types and sizes. For example, you can easily get laid off the next day without any backup plan. As a result, you could spend six months without landing another job.

The purpose of an emergency account is to cover your expenses for a given time when you cannot work. In addition, the same account can help you when you have unexpected emergencies.

For this reason, you must save money in the emergency fund based on your monthly expenses. I recommend saving 6 months of your monthly expenses, but saving between 3 and 6 months of expenses is still better than $0 savings. You will calculate your monthly expenses and save between 3 and 6 times that amount. If your monthly expenses are $4,000, you would save between $12,000 and $24,000.

Can you save too much in the emergency account?

There is no maximum amount you should have in your emergency account. However, keeping too much in the account will prevent you from putting your money to good use. For example, you could invest extra cash in a high-yield savings account and earn interest. You could also put your money into other investments such as stocks, real estate, EFT, etc. This way, you will put your money to work instead of having it in an account where you earn a small percentage.

On the contrary, saving too little might not be good enough to cover your emergencies. This is why saving between 3 to 6 months of emergency funds is acceptable.

4. A brokerage account

Another important money account everyone must have is the Brokerage account.

A brokerage account is an account offered by financial institutions known as brokers. This account holds investors’ money and assets and facilitates transaction processes. For example, you will need a brokerage account before investing in stocks, index funds, or other securities.

The process of opening a brokerage account is straightforward. You can easily open a brokerage account in a few minutes, but it might take up to 3 days to verify your account and identity. Some of the best brokerage firms include Fidelity Investments, Charles Schwab, Etrade, etc.

Once an account is open, you must link a bank account to your brokerage account. This allows you to fund your account and move money between your bank and your brokerage account. From there, you can start buying and selling financial securities.

In this era, you cannot build wealth and become financially independent without investing. This is why a brokerage account is one of the most essential money accounts everyone should have.

If you don’t have a brokerage account, consider opening one and learning the basics of investing. Working with a financial advisor/investment advisor is equally important to help you navigate the complexity of investing. A financial advisor will help you pick the right investment that matches your financial goals and help you minimize risks.

5. Money accounts you need: Retirement accounts

Even if you are working right now, there will come a time when you can no longer afford to go to work. Your body will shut down, and you will want to stay in bed all day.

You will not be physically able to lift all those machines or patients or operate your equipment. Your vision will fade away, and your hearing capacity will plummet. Walking will be difficult, and standing all day will become impossible. Your body will shut down slowly as you watch, and you can do nothing to stop it. Your medical bills will go higher, and you will depend on others to survive.

The bad news is that all your expenses will be there—in fact, they will go higher.

The question is: How will you afford all those expenses if you cannot work?

That is where your retirement accounts or retirement savings come in.

What is a retirement account?

A retirement account is a tax-advantaged account designed to help you save and invest money for your retirement. These accounts can be provided by employers (401(K) or 403(b)) or opened by individuals (IRA accounts).

Each retirement account has its benefits and drawbacks. However, they are all designed to help you save money to support you and your loved ones during your retirement when you can no longer afford to work.

The following is a brief description of widely used retirement accounts.

a) 401(k) and 403(b)

Your 401(k) and 403(b) are money accounts sponsored by your employers to help you save for retirement. The only difference between these two money accounts is the type of employer you have.

A 401(k) is offered by private companies seeking profits, while a 403(k) is offered by non-profit organizations.

If you work for a company that offers one of these retirement accounts, sign up for it. These accounts come with many benefits, which I have listed below.

The benefits of a 401(k) and 403(b)

Your employer-sponsored accounts come with a lot of benefits. The following are some reasons you should start contributing to your 401(k) or 403(b).

Before-tax contribution. If you have a pre-tax 401(K) or pre-tax 403(K), your contributions will come from before-tax wages through payroll deductions. This helps you reduce your taxable income and gives you a chance to grow your accounts and pay taxes when you withdraw money from them (during your retirement).
Employer contributions. Most employers match employees’ contributions by a dollar amount or a small percentage. For example, if your employer matches your contribution up to 6% of your gross income and your income is $100,000, your employer will contribute up to $6,000 to the plan.
Access to top-quality investments. The money you put into your retirement account can be invested in high returns investments, allowing you to grow your savings faster.

What is the maximum contribution to your 401(k) Account?

Since your 401(k) account gives you tax advantages, there is a limit to how much you can contribute to the account every year. This limit ensures you do not put all your money into your account and evade tax. Uncle Sam still needs some tax to survive.

According to the Internal Revenue Service (IRS), the maximum contribution you can make to your 401(k) in 2024 is $23,000. This is still a lot of money to crip your taxable income by a lot. Also, if you contribute this much and your employer matches it with a large percentage, you will still gain a lot of free money from your employer.

When should you start your 401(k)

Start a 401(k) account as soon as you are qualified! Unless you are a contractor with no benefits, you should always start your 401(k) or 403(b) accounts and make contributions as soon as your employer approves you for the plan.

b) Roth IRA

This account differs from other retirement accounts, such as 401(k) plans and 403(b)s. With a Roth IRA, you can contribute before-tax money and pay no tax later on qualified distributions during retirement.

You can also have a Roth IRA on top of your 401(K) Account. This will help accelerate your wealth toward retirement through tax advantages.

How much can you contribute to your Roth IRA account?

Your income will directly affect the amount you can contribute to your Roth IRA. The IRS limits your contribution to $7,000 or $8,000 for people 50 and older. A Roth IRA is one of the best money accounts because qualified distributions will be tax-free, and you can pass the account on to your descendants tax-free.

c) Traditional IRA

If your employer does not offer retirement accounts such as 401(k) or 403(b) and your income is above the limits of a Roth IRA, open a traditional IRA. This is also a tax-advantaged account for those who want to reduce their taxes.

According to the IRS, the money you contribute to your traditional IRA can be fully or partially deductible. It all depends on your income and filing status (single or filing jointly), modified adjusted gross income, and other benefits you might have from work.

Similarly to a Roth IRA, contributions to a traditional IRA are $7,000 or $8,000 if you are 50 or older in 2024.

6. Important money accounts: Credit card account

A credit card account is an account you open from a bank, credit union, or similar financial institution that allows you to spend on credit. Each credit card account comes with a credit limit, which is the maximum you are allowed to spend on the card, and it is automatically renewed.

Unless you plan to buy everything with cash and never borrow money, you must start building credit as soon as possible. An excellent way to do this is to use a credit card. This is because activities on your credit cards are reported on your credit reports.

Having a good credit history increases your creditworthiness. Most lenders require good credit scores to qualify for loans and credit cards.

Benefits of having a credit card account

A credit card account has a lot of benefits that should not be overlooked or ignored. Check out the following list of benefits of having a credit card.

You get access to cash, especially when you are low on cash
The account allows you to build your credit history and raise your credit score.
A credit card helps you learn how to manage your finances and make financial decisions.
You get discounts through cashback, miles, and points.

7. 529 college savings plan

Another money account to have is the 529 college savings account. Don’t walk away yet if you have never heard of this account. I will explain what it is designed for and why you should have it in your financial planning.

The 529 college savings account is designed specifically for the beneficiary’s higher education. For example, if you are a parent with children, opening a 529 college savings account will help your children pay for college and related expenses such as books and fees.

This is a tax-advantaged account, and many people use it as an investment option. As the account owner, you will control all activities in the account, including investments, until the beneficiaries turn 18.

One of the main reasons you need this account is to ensure that your kids do not end up in debt due to college expenses. Millions have borrowed money from student loans and failed to pay them off. The struggle with student loans and debt, in general, is real. To protect your loved ones, open a 529 college savings account.