Financial Feminist – 108. Your Ultimate Guide to Bank and Investing Accounts

Intro

In this episode of the “Financial Feminist” podcast, Kristen and Tori start by discussing the astrology app Co-Star before diving into the ultimate guide to bank and investing accounts. Tori, a financial feminist and best-selling author, shares her expertise on how women can fight the patriarchy by becoming financially empowered.

Main Takeaways

Checking Accounts and Debit Cards

• Checking accounts are essential for day-to-day financial transactions.
• Debit cards, linked to checking accounts, should be used with caution due to security risks.
• Checking accounts should only have the amount of money needed to cover expenses plus a buffer.

Savings Accounts

• General savings accounts are for emergency funds and short-term savings goals.
• High-yield savings accounts offer higher interest rates and are ideal for long-term savings goals.
• Regular savings accounts have lower interest rates and more restrictions compared to high-yield savings accounts.

Certificate of Deposit (CD)

• CDs are savings accounts with a higher interest rate, suitable for medium-term goals.
• CDs have various time allotments, ranging from 6 months to 20 years, but they are best for 2-7 year goals.
• Early withdrawal from a CD may result in a penalty.

Retirement Accounts

• Retirement accounts, such as 401k and Roth IRA, are not investments but accounts that hold investments.
• 401k is tied to your employer, while self-employed individuals can open a solo 401k.
• IRA is an individual retirement account that you can open yourself, not tied to your employer.

Brokerage Accounts

• Brokerage accounts can be used for any purpose, but there are fewer tax breaks compared to retirement accounts.

Health Savings Account (HSA)

• HSA is a tax-advanced savings account for people with high deductible insurance plans.
• HSAs are triple tax advantaged and can be used for a variety of medical expenses.
• To be eligible for an HSA, you must be covered by a high deductible health insurance plan.

Flexible Spending Account (FSA)

• FSA is tax-free and generally used within a calendar year.

529 Plan

• 529 plans are specifically designed for education expenses, including college tuition and related costs.
• Contributions to a 529 plan grow tax-free, and there is flexibility in choosing any state’s plan.
• Prioritize your own financial well-being before prioritizing your children’s college education.

Summary

Choosing the Right Bank and Investing Accounts

In this episode, Tori provides an ultimate guide to bank and investing accounts. She categorizes these accounts based on their purpose and explains the benefits and considerations for each type. Tori emphasizes the importance of having a checking account for day-to-day financial transactions, while also cautioning about the security risks associated with debit cards.

For savings goals, Tori recommends having a general savings account for emergency funds and short-term goals. However, for long-term savings goals, she suggests opting for high-yield savings accounts that offer higher interest rates. Regular savings accounts, on the other hand, have lower interest rates and more restrictions.

Tori introduces the concept of Certificate of Deposit (CD) as a savings account with a higher interest rate, suitable for medium-term goals. She explains that CDs have different time allotments and may incur penalties for early withdrawal. Alternatively, high-yield savings accounts provide similar interest rates to CDs but without the penalty for early withdrawal.

Retirement accounts, such as 401k and Roth IRA, are highlighted as essential for long-term financial planning. Tori clarifies that these accounts hold investments rather than being investments themselves. She distinguishes between 401k, which is tied to an employer, and IRA, which can be opened individually.

In addition to retirement accounts, Tori introduces brokerage accounts as a flexible option for investing. However, she notes that there are fewer tax breaks compared to retirement accounts.

Tori explains the benefits of Health Savings Accounts (HSAs) for individuals with high deductible health insurance plans. HSAs are triple tax advantaged and can be used for various medical expenses. On the other hand, Flexible Spending Accounts (FSAs) are tax-free accounts generally used within a calendar year.

Lastly, Tori discusses 529 plans, which are specifically designed for education expenses. She encourages listeners to prioritize their own financial well-being before prioritizing their children’s college education. Contributions to 529 plans grow tax-free, and there is flexibility in choosing any state’s plan.

Conclusion

In this episode, Tori provides a comprehensive guide to bank and investing accounts. She emphasizes the importance of aligning these accounts with individual financial goals and circumstances. Whether it’s choosing the right savings account, planning for retirement, or saving for education expenses, Tori empowers listeners to make informed decisions and take control of their financial futures.