Sub-Savings Accounts: The Best Way To Handle Short-Term Savings Goals

A reader recently asked me a question about how I recommend people handle their short-term savings goals. After crafting my response, I decided it was actually worth elaborating a little bit more about the short-term savings system I’ve used for much of my life. By using this system, I’ve been able to buy the stuff I want without really noticing any impact to my wallet, and importantly, also NOT buy stuff by giving myself time before any big purchase.

So, what’s my system for handling short-term savings? The key is to use sub-savings accounts. These are separate savings accounts that I open at one bank and that are each earmarked for a specific purpose and funded over many weeks and months. Some things you know you’ll buy each year (i.e. Christmas presents). Other things are more sporadic or unpredictable, but will likely come up at some point (i.e. home or car repairs). The important thing is that once you fully fund each account, you can pay for whatever it is you need to pay for without any guilt. 

Setting up sub-savings accounts is pretty simple. To do this, open up an account at a bank that lets you create multiple sub-savings accounts. Technically, these sub-savings accounts are all treated as different savings accounts, but you can see them all in one dashboard whenever you log into your bank account’s website or app (in other words, you won’t have to log into multiple accounts). A good bank will let you open up each sub-savings account really fast – you should be up and running for each account in minutes.  

Once your sub-savings accounts are open, you’ll want to designate each one for a specific goal, and only use the money for that goal. Ideally, whatever bank you use will also allow you to name each specific sub-savings account. This is really important because it helps you understand what the money is for and makes you less likely to use it for other purposes. For example, I have the following sub-savings accounts set up for my short-term savings goals:

• 2019 Side Hustle Income
• 2018 Side Hustle Income
• Stupid Mistakes Fund
• Dog Fund
• Christmas Money
• Bank Account Bonuses

From there, figure out how much you need for each specific goal and start saving for it in small chunks over time. If you know that each year you spend $500 on Christmas gifts, then start saving about $41 each month for 12 months. By the time Christmas rolls around each year, you’ll have $500 ready to go. And you won’t even have noticed that you saved it.

Different Types of Short-Term Savings Goals

The idea of short-term savings is pretty straightforward, but it gets slightly more complex in my system. That’s because I think there are two types of short-term savings goals.

First, there are regular short term savings goals. These are things that you know you’re saving up for and are planning to buy pretty far in advance – an engagement ring, a vacation, Christmas, and other similar things. Because you are planning for these in advance, you can set them up at home on your computer.

The second type of short term savings goals are the ones that just randomly come up – I creatively call these “random” short term savings. For example, you might be at the mall and see something that you want to buy that you didn’t even know existed before you saw it. But instead of buying it right away, you decide to avoid going into debt and instead save up for it before you buy it.

That’s what I did a year ago when I wanted to buy a new suit that I saw at the mall. Instead of spending money unplanned, I instead decided to give myself some time to save up for it. Doing this also comes with the added benefit of testing myself to see if I really want to buy something – it basically forces me to have a cooling off period before I buy anything expensive.  It turns out I didn’t really want that suit, and now, 1 year later, I have some extra cash that I saved without even noticing it. 

The thing about random short-term savings is that you don’t really plan for it. Instead, you need to be able to set up these savings goals on your phone really fast, otherwise, you’ll forget to do it. Thus, the differences between these two types of short-term savings lead me to use two slightly different systems.

Basically, I use normal bank accounts with sub-savings accounts for regular short-term savings goals. And I use fintech apps for my “random” short-term savings goals.

The Best Savings Accounts for Regular Short-Term Savings Goals 

As explained, regular short-term savings goals are the goals that I’m able to plan for well in advance. Because of this, I stick to normal, online banks when I’m saving for regular, short-term savings goals. Here are a few that I recommend.

Capital One 360. I personally use Capital One 360 for my regular short-term savings goals, primarily because it was the savings account I first opened back when I was a teenager. At the time, Capital One 360 was still ING Direct, and it was pretty much the only bank account that was totally online and allowed you to do sub-savings accounts. When Capital One bought ING a few years ago, all of my accounts became Capital One 360 accounts. They still work totally fine, so I’ve just kept using them, although I haven’t been happy with some of their recent website changes. Still, it works, so I just keep using it.

Ally. Ally is another bank that I recommend, and honestly, I think it’s probably the best overall bank in the United States for pretty much everything. They also let you set up different sub-savings accounts and give them different names. I keep the bulk of my emergency fund in Ally (in a savings account that I’ve labeled “emergency fund”), but I haven’t used Ally for short-term savings. My wife uses Ally exclusively for both her checking account and all of her savings accounts. 

Discover. Discover is another bank that I initially opened to get a bank account bonus, but then kept using because I think it’s a good bank. They also let you open up multiple savings accounts and name each one with a nickname. At the moment, I use Discover for all of my Airbnb income, but I could see myself using it for short-term savings goals if I ever make the switch.

There are a lot more savings accounts you could use, and these are just three that I personally use and think are good. Importantly, all of these accounts are totally free and have no minimum balance requirement.

To sum things up, whichever account you use for short-term savings goals, remember three things: 

1. Pick a savings account that lets you create multiple sub-savings accounts easily.
2. You should be able to give each sub-savings account a particular nickname so that you can easily see what you’re saving for.
3. Whatever savings account you use for short-term savings goals should be free and have no minimum balance requirement. 

How To Handle Random Short-Term Savings Goals

Random short-term savings goals are for the things that you randomly think about when you’re out and about. You need to be able to use your phone to set these goals up because you won’t remember to set up a new savings goal when you’re back at your computer. This is why I recommend using fintech savings apps to handle these types of savings goals. 

Unfortunately, how to save for random short-term savings goals is a little bit more difficult to figure out in the current fintech landscape. For a long time, I was using Qapital, as they worked perfectly for this. You could basically open the app, set up a new savings goal in seconds, then automate how much you needed to save. This worked out really well since I could see something I wanted and then set up my savings goal on the spot.

However, Qapital recently went to a paid subscription model, which means it’s pretty much useless for most people now. If you signed up for it before the paid subscription model was put into place, then you’re grandfathered into a free membership, so keep using Qapital for your random short-term savings goals if you still have the free version of it. For everyone else, you’ll need to use something different.

I’m still on the lookout for new apps to replace Qapital. I’ve been using Simple as my primary checking account for a while now, and they have a “goals” feature that has the potential to do what Qapital used to do for me. This might be a good option for anyone that uses Simple as their primary checking account. 

Another app that seems to have the potential to replace what Qapital did for me is an app called Rize. It’s an app that’s similar to Qapital, but I never used it much since Qapital was already working for me. Rize looks like it’s relaunching to a new type of app though, so I’m waiting to see what they do (as of now, I don’t think they’re accepting new signups).

So, for now, I’m probably going to just keep using Qapital for my random short-term savings, since I still have the free version of it as an original member. I’ll be testing out Simple some more as well to see if the “goals” feature is what I’m looking for. I’ll be sure to update this post as I figure things out. Remember, fintech changes fast, so you always have to be prepared to pivot.

Automate Your Short-Term Savings 

With all that said, the thing you have to do with short-term savings is to automate everything. Whatever bank account you use should allow you to automate your savings so that you save a certain amount each week or month. Set things up once, then never think about it again. 

You can use any system you want that works for you. At its core, this system works by earmarking my savings for specific things and automating my savings over a period of time. Then little by little, the money I’ve saved adds up. Because I’m saving small amounts at a time, I never notice the money leaving my checking account. You’ll be surprised at how much easier it gets to buy things when you start planning in advance and saving for it over time.