How to Use Savings Buckets to Manage Your Money

What Are Savings Buckets?

A savings bucket is a digital banking feature that lets you organize your savings into separate sub-accounts for different savings goals and purposes. Savings buckets can look slightly different from bank to bank and may be called by different names. Generally speaking, though, they allow you to work toward and manage multiple savings goals from one single account.

Savings buckets pair nicely with high-yield savings accounts, combining the utility of tracking individual goals with the added boost of a high annual percentage yield (APY).

Learn more: Why Do High-Yield Savings Account Rates Change?

What Can You Use Savings Buckets For?

You can use savings buckets to save toward any long- or short-term goal—or, more accurately, to save toward multiple goals at once. Here are a few goals you might consider saving for:

• Emergency expenses
• Down payment for a house
• New car
• College costs
• Home renovations or repairs
• Travel
• Holiday gifts
• Wedding expenses
• Pet expenses
• Medical procedures
• Moving costs

Example: Say you're trying to build up your emergency savings, tuck away a few dollars for a summer getaway and start a fund to replace your car, which just passed the 100,000-mile mark. You might create a bucket for each of these, setting up a $100 automatic transfer to each on the first of every month. After a year, you'd have socked away $1,200—plus interest—toward each of these goals.

Learn more: How to Save Money for a Short-term Goal

Benefits of an Account With Savings Buckets

Savings buckets can help you better manage your savings and monitor your progress. With savings buckets, you can:

• Manage funds for several purposes easily and efficiently from one single account.
• Keep funds for savings goals separate from your general savings and daily spending money.
• Monitor progress and gain insights into individual savings goals.
• Fund savings goals strategically using automatic transfers.
• Transfer money from your buckets into your checking account when you're ready to use it.
• Contextualize your savings efforts within your larger financial picture.
• Visualize your goals, including how far you've come and how far you have to go.

Learn more: How to Create an Automatic Savings Plan

Drawbacks of Savings Buckets

The biggest downside of savings buckets is that they take some initial time to set up and configure. If you set up automatic deposits into your buckets, they also may require regular monitoring, as you could overdraw your checking account if you're not carefully watching the balance.

Additionally, not all banks and financial institutions offer savings buckets, so leveraging this tool may limit your banking options. It also may require switching from the bank you currently use.

Learn more: How to Switch Bank Accounts

How to Use Savings Buckets

Not all banks and financial institutions offer savings buckets, so you'll need to shop around when choosing where to get your savings account. Some banks that offer them include Ally Bank, Flourish Financial and SoFi. Banks can also vary on how many buckets you can create. For example, Ally Bank offers 30 buckets maximum, while SoFi offers 20.

The process for setting up your buckets depends on your bank, but you will usually need to:

• Assign each bucket a name and category.
• Set a goal dollar amount and deadline for each bucket.
• Designate how you'll fund the bucket.

Once set up, savings buckets can make working toward multiple goals cleaner and simpler. You can see how you're progressing, adjust as you go and know exactly when you've saved up enough to move forward.

Learn more: How to Open a Savings Account

More Ways to Organize Your Savings

An account with a savings bucket feature isn't the only way to effectively manage and meet your savings goals. There are other strategies you can explore, too, including:

• Using a personal finance app: If your bank or credit union doesn't offer savings buckets (or a similar savings feature), you can use a personal finance app that has savings sub-categories to approximate the experience. Examples include YNAB and Quicken's Simplifi.
• Manually monitoring your goals on a spreadsheet or paper ledger: If you prefer to be more hands-on with your goal tracking or want to avoid switching banks, this tried-and-true method can work.
• Opening multiple savings accounts: You could also open one savings account for each of your savings goals. If you opt for this strategy, make sure you won't run afoul of minimum balance requirements, and be wary of account maintenance fees, which can derail your ability to save.
• Leveraging the envelope method: This can work well for micro-savings. Say, for example, you want a slush fund to use for an occasional night out. You can put your spare change and the odd $20 here and there into an envelope designated for that specific purpose. Create individual envelopes for each unique goal you have.
• Using several CDs: When you open a certificate of deposit (CD), you agree to leave your money in your account, untouched, until the CD's term expires. (You'll usually pay a penalty for withdrawing your money early.) If you have several goals, you can stagger your CD terms to mature when you need the cash. For example, you might want a six-month CD for summer vacation money but a 10-year one if saving for your home's down payment. This is often called a CD ladder.

Keep Your Financial Goals on Track

While a flush savings account can be great, an account that lets you monitor, track and save toward multiple goals at once could be even better. So, if you're shopping for a high-yield savings account, consider looking for this feature when comparing banks and credit unions.