Money Doesn't Belong in Your Savings Account if You're Using It for These 3 Things

It's a good idea to have money in a high-yield savings account. You'll want to keep your emergency fund in savings so you can access the money when you need it and earn the most interest you can without risking losses. You'll also want to keep money in savings if you are planning to use it in the coming few years for a purchase or big expense.

But, while some money belongs in savings, there are also situations when you should not keep the money in this type of account. Here are three examples.

1. When you're saving for retirement

If you are saving for retirement, it makes no sense to put the money into a savings account when there are tax-advantaged retirement accounts out there you could use instead. For example, instead of sticking money in savings, you could put the funds into a:

• 401(k): If your employer offers one, you can contribute up to $22,500 into this account with pre-tax funds and an additional $7,500 in catch-up contributions if you're 50 or older. These are the 2023 limits. Your employer may match a portion of your contributions, which is free money.
• Traditional or Roth IRA: You can contribute up to $6,500 combined in a traditional or Roth IRA even if your employer doesn't offer a retirement plan (as long as you don't exceed income limits). You can also make an extra $1,000 catch-up contribution if you're 50 or older. These are also the 2023 limits. You don't get an employer match, but you can claim a tax deduction for contributions in the year you invest with a traditional IRA or can withdraw money from your Roth IRA tax-free as a retiree.

The tax savings can be very valuable with these accounts. If you are in the 22% tax bracket, each $1,000 you contribute could save you up to $220 on your taxes. That means after factoring in these savings, you could end up reducing your take-home income by just $780 for the contribution.

If your employer offers a 401(k), talk to HR or your plan administrator to find out how to start making contributions to it. Often, it's a matter of filling out some paperwork. If you don't have a 401(k), check out the best brokerage firms for IRAs and open an account today. Then start putting your money there instead of savings that you'll need for retirement, so you don't miss out on the government help that's available.

2. If you're saving for healthcare expenses

If you are saving for healthcare expenses, your money may not belong in a savings account if you are eligible for a health savings account (HSA).

You are likely eligible for this type of account if you have a qualifying high deductible health plan. In 2023, this is one with at least a $1,500 deductible and out-of-pocket expenses capped at $7,500 if you have an individual plan, or with a $3,000 deductible and maximum out-of-pocket expenses of $15,000 if you have family coverage.

An HSA allows you to contribute to the account with pre-tax funds and to take money out tax-free for qualifying health expenses. You don't want to pass up on the opportunity to save for your healthcare with a tax-advantaged account if you're eligible.

If you have an HSA through work, your employer likely offers this type of account and again, you can sign up by talking to HR and filling out some paperwork. If your employer doesn't offer one, you can sign up with one of these services:

• HSABank
• Lively

3. If you're using the money for everyday expenses

Finally, if the money in your savings is for everyday expenses, it probably doesn't belong in that type of account. Instead, it should be in your checking account. Checking accounts are designed to allow you to spend. Most offer ATM access, bill pay, and quick and easy funds transfers. Savings accounts don't necessarily provide these features, since the goal of a savings account is to save.

You can find a great checking account and open an account today if you don't already have one. so you can keep your money-to-spend and money-to-save separate.

Ultimately, it's important to consider what the best type of account is for every dollar, so you can make the most of your hard-earned funds.