Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page. Take advantage of these different but important accounts. Key points It’s important to make the most of the money you don’t need for bills and expenses. Here are some accounts to consider for 2023, each of which serves a distinct purpose.
Many consumers struggled to keep up with bills in 2022, and as such, had little money left over month after month. But the hope is that things will be different in 2023, and that you’ll have money at your disposal beyond what you need to cover your bills. At that point, you’ll want to find the right home for your money. And here are three accounts worth considering.
1. A savings account The events of the past few years have taught us the hard way that having savings is important. In 2020, many people lost their jobs when the COVID-19 outbreak erupted. And in 2021 and 2022, many consumers had a hard time coping with higher living costs fueled by inflation, especially once government aid ran out. That’s why it’s so important to have a solid emergency fund — money to cover things like periods of unemployment or unplanned bills. And the best place for your emergency cash reserves is none other than a savings account, where your principal deposits are nice and protected.
How much emergency savings should you aim for? The old convention was to save enough cash to cover three to six months’ worth of bills. In the wake of the pandemic, some experts are now calling for eight to 12 months’ worth of expenses in the bank. Think about the threshold that gives you peace of mind and aim to fill your savings account with enough cash to meet it.
2. An IRA Ideally, you’ll have some money at your disposal this year beyond what you need for emergencies. At that point, it’s a good idea to invest that money for the future. And if you want to reap some tax benefits along the way, then putting money into an IRA, or individual retirement account, is a good idea. When you fund a traditional IRA, your contributions go in tax-free. So if, for example, you put $3,000 into a traditional IRA this year, that’s $3,000 of earnings you won’t pay taxes on. Plus, once your money is in your IRA, you’ll have the option to invest it as you see fit. You can choose to invest in individual stocks, or invest in different funds (like ETFs) that make it easier to build a nice, diverse portfolio.
3. A brokerage account IRAs differ from brokerage accounts in that they’re earmarked specifically for retirement, and they offer tax breaks that brokerage accounts don’t. But brokerage accounts are far more flexible. With an IRA, you’re generally required to leave your money alone until age 59 ½. If you take an earlier withdrawal than that, you’ll face a 10% penalty that won’t come into play with a brokerage account. Meanwhile, like IRAs, brokerage accounts give you lots of options for putting your money to work. And many brokerage accounts these days allow you to invest on a fractional basis. That means you can purchase partial shares of stock to build a portfolio instead of having to commit to whole shares, which can, in some cases, be very expensive.
Where should you put your money? Completing your emergency fund should be your first priority in 2023. But from there, it pays to branch out into investing. As such, you may find that it makes sense to put your money into a savings account, an IRA, and a brokerage account this year so you get the best of all worlds.