Yahoo Finance 5 Bank Accounts You Need When You Retire
You spend a good portion of your life working and planning for your golden years, but your work isn’t done after you say goodbye to your career. It’s important to ensure your banking situation is set up to support your financial needs in retirement.
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Whether you’re on the cusp of retirement or planning ahead, here are the five types of bank accounts you’ll need to organize your finances for this new chapter of life.
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Checking Account
A checking account is essential for managing daily expenses in retirement, according to Taylor Kovar, CFP, CEO and founder of Kovar Wealth Management. A checking account offers easy access to funds for regular expenses such as groceries, utilities and leisure activities.
“The liquidity and accessibility of checking accounts make them ideal for handling day-to-day transactions and automatic bill payments,” Kovar added.
As a bonus, you can look for a checking account that pays cash back or other rewards on your everyday spending, allowing you to save a bit of money on the spending you have to do anyway. This is particularly important for retirees on fixed incomes who may have tighter budgets in retirement compared to their working years. Rewards checking accounts are most commonly found among online banks and credit unions.
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High-Yield Savings Account
It’s also important to have an easily accessible savings account that holds your rainy day funds. However, if your money is going to sit at the bank, it might as well earn a decent return. Putting your cash in a high-yield savings account can help hedge against inflation and protect your buying power.
Some of the top high-yield savings accounts today offer around 5% APY. “However, these accounts can come with more stipulations, such as [a minimum] opening deposit amount and how you can access the funds,” said Kim Gattis, senior vice president and manager of financial planning at UMB Bank.
Before choosing an account, be sure you understand any requirements that need to be met to earn the advertised rate.
Money Market Account
Another bank account that can be helpful to have in retirement is a money market account, which allows you to save funds at a competitive interest rate while providing checking account-like features such as check writing capabilities or a debit card.
These accounts often come with minimum balance requirements and award higher rates for larger balances. They’re ideal for saving large amounts of money while maintaining some liquidity. Gattis noted that money market accounts do often limit the number of monthly fee-free withdrawals you can make, so it is wise to consult with your financial institution about any potential restrictions and fees.
Certificate of Deposit (CD)
If you have money that you don’t need to touch for a while but don’t want to subject it to market volatility and risk, a certificate of deposit could be a good account to put it in. CDs typically offer higher interest rates than you’ll find with a traditional savings account in exchange for locking in funds for a set period, known as the term (which can range from a few months to several years).
“CDs can be used for funds that are not needed immediately but are planned for use in the near future, like a planned vacation or a major purchase,” Kovar said.
A CD can also help you lock in today’s competitive interest rates before they fall, which some experts believe will happen next year. And if you want to take advantage of the CD rates available today but don’t want to lock in your funds for an extended period, you can try building a CD ladder for steady retirement income.
Health Savings Account (HSA)
A health savings account (HSA) is a tax-advantaged savings account designed for people with high-deductible health insurance plans (HDHPs). “This type of account offers a triple tax advantage, meaning money goes in pre-tax, it earns tax-free, and it can be withdrawn tax-free when used for eligible medical expenses,” Gattis said.
While an HSA can be a great tool during your working years to save money on health costs, it can also be a valuable account to have in retirement. Once you reach age 65, funds held in an HSA can be withdrawn for any purpose, though you will have to pay income taxes on withdrawals if the money isn’t used for qualified medical expenses.
This means that your HSA can essentially function as another retirement savings account, similar to a 401(k) or IRA. In other words, you will receive tax deductions for your contributions, and the money will have the opportunity to grow tax-free until your retirement years.
“These accounts are specific to saving for retirement and would be used in addition to a regular checking and savings account for everyday spending and emergency savings as well as any taxable investments you choose to make,” Gattis said.
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This article originally appeared on GOBankingRates.com: 5 Bank Accounts You Need When You Retire
