Money & Finance

The 5 Bank Accounts Every Adult Should Have

This article may contain affiliate links, meaning we may receive a commission if you make a purchase through one of our links, at no cost to you. The Ambitious Dollar is reader-supported and only recommends products and services that we believe in. Read our full disclaimer here.

If you’ve ever felt uncertain about the best way to organize your money and what type of bank accounts you should have, you’re not alone. A 2019 survey found that 62% of Americans don’t understand the basics of banking, including what types of accounts they should have open. 

Setting up the following 5 bank accounts will allow you to:

– Keep your money organized

– Take advantage of certain benefits and incentives 

– Stay on track to reach your financial goals

1. Checking Account

The basics

90% of Americans utilize checking accounts, making it one of the most common financial tools used nationwide. Checking accounts are beneficial for a number of reasons. They make it easy to send and receive money, offer financial protection under the FDIC, and can help you keep track of your transactions. It’s a much better method of keeping your cash accessible than stashing it under your mattress.

Because there are no transaction limits on checking accounts, they can be particularly handy for all of your recurring transactions, such as paychecks and bills. However, just because checking accounts don’t limit transactions doesn’t mean they’re the best place for you to store all of your money.

Checking accounts tend to have very low-interest rates. The average checking account interest rate in 2019 was 0.05%. Since the historical average rate of inflation is 3.22%, that means that your money would lose 3.17% of its value every year just sitting in a checking account.


So how much money should you keep in your checking account? First, calculate your average monthly expenses. If you have an established budget, this will be an easy task. If not, track what your monthly expenses are for 3-4 months and then take the average. Then, once you’ve got your monthly average figured out, tack on an extra 20% as a buffer.  This number represents a safe amount to keep in your checking account.

2. Savings Account

The basics

A less utilized but still incredibly important financial tool is a savings account. While 90% of us use checking accounts, a 2019 study found that only 56% of Americans utilize savings accounts. However, saving money is essential for your financial health. Life is unpredictable, so making sure you have adequate savings can help you to face the unexpected, purchase a big-ticket item, and reduce your financial stress. 

Savings accounts also come with a host of benefits. To start with the obvious, putting money into a savings account rather than leaving it in your checking account will make it less tempting for you to spend it. They also offer the same type of protection through the FDIC as checking accounts do. Moreover, savings accounts offer slightly better interest rates than checking accounts. The 2019 average savings account interest rate is 0.09%

Ok – hold on to your judgment for a moment. No, 0.09% is not a good interest rate, but it is better than 0.05%. Fortunately, there’s quite a range of better rates above that national average. Historically, online savings account interest rates have averaged closer to 2.0%. Certain high-yield savings accounts will even exceed 2.0% interest rates. The bottom line is that it pays to do your research when setting up a savings account. 


So how much money should you keep in a savings account? There are a few important things to know when determining this figure. Savings accounts, unlike checking accounts, do have limits on transactions. You are limited to 6 transactions per month and will likely incur fees and penalties for exceeding that limit. While that may seem intimidating, it’s important to remember that a savings account is for just that, saving. It’s not an account you should utilize for recurring or frequent transactions.  

Savings accounts typically don’t provide high enough interest rates to keep up with inflation, so you won’t want to keep too much money in them. The amount you choose to save will be ultimately dependent on what you’re saving for. Is it an annual vacation? Perhaps you’ll save $100 per month. Maybe it’s for a kitchen remodel and you decide to save 10% of your take-home pay for the next 6 months. Calculating this number in the context of your overall budget will help keep you on track for your goals and ensure you don’t skimp in one area just to overspend in another.

3. Emergency Fund

The basics 

A 2018 poll found that 85% of Americans worry about their finances “sometimes”, and 30% worry “constantly”. What was the largest contributor to that worry? Not having an established emergency fund to deal with life’s unpredictability. 

An emergency fund is an extra reserve of cash saved up to help you navigate those inevitable ups and downs. Whether it’s a medical emergency, natural disaster, or loss of a job, we all need to be prepared to handle a degree of financial uncertainty. 

If you don’t already have an emergency fund established, it can sound quite intimidating to save up enough money. However, it’s important to note that an emergency fund is meant to cover your expenses, not your salary. It’s much more manageable to be able to save up a few months worth of expenses to float yourself through times of uncertainty rather than a few months of gross income. Luckily, you would have already calculated what those monthly expenses are through your budget or when you figured out what your checking account balance should be. 

Experts suggest that you have 3-6 months worth of expenses saved in an emergency fund. If you’re thinking that’s a pretty wide range, you’re right. This guide will help you determine what makes the most sense for you given your financial situation. 


Emergency funds can be set up in a variety of different accounts. There are three common options: setting up your emergency fund in a savings account, a Certificate of Deposit (CD), or splitting the difference by putting a portion into a savings account and another portion into a CD. 

Keeping your emergency fund in a savings account means the money will be easily available to you. But it also means your money will likely lose value over time due to inflation outpacing the low interest rates. CD’s, on the other hand, tend to offer slightly higher interest rates, but many require you to leave your money put for an extended period of time. Withdrawing funds early may incur fees, which may ultimately cancel out any additional interest you earned. 

A compromise is to put some of your emergency funds into a savings account and some into a CD. For example, say you’ve determined that your entire emergency fund should total $6,000 which covers 3 months of your expenses. In order to keep your fund from losing value to inflation while also keeping most of it readily available for those uncertain times, you elect to put $4,000 of it into a savings account and $2,000 of it into a CD. 

4.  Traditional 401(k)

The basics

A 401(k) is a type of employer-sponsored retirement account. If your company offers a 401(k), particularly one with matching contributions, you’ll want to make sure you take advantage of it. Traditional 401(k)’s allow you to invest pre-tax dollars into a retirement account. You typically have the opportunity to allocate the percentage that is taken out of your paycheck each month as a contribution. It’s a great way to ensure you are consistently investing money for your future, and not accidentally spending it. Because you’re investing pre-tax dollars, it also decreases your taxable income. 

One of the biggest benefits of most 401(k)’s is the matching contributions that companies offer. Matching contributions are essentially free money. What’s not to love about that? The amount and structure of matching contributions vary quite a bit between companies. Typically, companies will contribute funds into your account matching either a percentage (up to and including 100%) of your contributions, or it may be specified as a dollar amount.

Either way, the best bang for your buck is to aim to contribute as much as necessary for you to attain the maximum employer contribution. Simply put, do your best to invest as much as required to maximize your 401(k) match so you don’t leave any of that free money on the table. 

401(k) annual contributions are capped at $19,500. Typically, your employer will offer you the opportunity to choose between a few different mutual funds to invest in. The account will then be managed by your employer. As with many retirement accounts, you must wait to start withdrawing any funds until age 59 ½. Withdrawing funds earlier than that, except under very few exceptions, will cause you to pay tax on the principal and interest, as well as a 10% penalty tax


While 401(k)’s have great benefits, they also have some limitations.  Because 401(k) contributions are “pre-tax”, it means that when you finally start to withdraw that money, you will pay taxes on both the principal investment and all of the interest. Additionally, many companies that offer matching contributions also utilize what’s called a vesting period. Vesting periods typically range from 3-5 years. Essentially they are waiting periods for you to officially retain the company’s portion (the employer match) of your 401(k) contributions. 

That’s pretty important considering most people stay in a job for an average of 4.2 years. If your company provided matching contributions to your 401(k) with a 5 year vesting period, but you left your job after 4.2 years, you wouldn’t keep any of those matching contributions.

5. Roth IRA

The basics

A Roth IRA as opposed to a 401(k), is an individual retirement account and is not associated with your employer. Roth IRA’s serve as fantastic retirement investment vehicles because of their tax advantages. Different from 401(k)’s, you contribute after-tax dollars into a Roth IRA. Cue the tax benefits. When it comes time to start taking distributions, you are not taxed on any of the growth in the account: dividends, capital gains, or interest. That’s an enormous amount of tax-free money considering most retirement accounts grow over multiple decades.

Some added benefits to the Roth IRA is that they are more lenient in your ability to withdraw funds without penalty prior to age 59 ½. In specific circumstances, you may withdraw funds early, such as to help pay for your first home, or in the case of a medical emergency.


While Roth IRA’s provide amazing tax shelters for your retirement funds, they are somewhat limited. Annual Roth IRA contributions are capped at $6,000. Your contribution also cannot exceed your taxable income for the year.

For example, if you’re a college student and only made $4000 in taxable income, that would be the maximum amount you could contribute to your Roth IRA. An exception to that is if you are a married couple and file joint tax returns. If one spouse does not work, it does not reduce the amount that can be contributed on their behalf (as long as you have $12,000 worth of taxable income).

An additional consideration is that since Roth IRA’s are individual retirement accounts, you will be responsible for its management. If actively buying and selling stocks isn’t something you’re comfortable with, investing in an index fund like the S&P 500 is a great option. Index funds are low-cost investments because they are passively managed but still yield historically high returns. There are plenty of guides available to get you started, but as always – it’s a great idea to speak with a financial advisor regarding your specific situation. 

How can you keep yourself organized?

So now you’ve done the hard work of setting up all 5 accounts. How in the world are you supposed to keep track of everything? If you’re a pen and paper kind of person, using a finance binder is a great way to stay organized. If not, using an app is a great alternative. Apps, unlike finance binders, allow you to see all of your accounts in one place. Favorites here at The Ambitious Dollar include Personal Capital’s net worth calculator and Mint, but there’s a number of great options out there for you to choose from.

Like what you read? Subscribe to our email list below!