Vaults in Savings Accounts: Understanding the Concept and Benefits
1. Introduction to Vaults in Savings Accounts
The concept of "vaults" in savings accounts is a relatively new development in personal finance, particularly within digital banking and fintech platforms. Traditionally, savings accounts are used to store money that earns interest over time. However, modern banks and fintech companies are now offering a feature called “vaults” or “sub-accounts,” designed to help users manage their savings more effectively.
In this guide, we’ll explore the functionality of vaults, how they differ from traditional savings accounts, and their benefits in helping you achieve financial goals.
2. What Are Vaults in a Savings Account?
A vault is a dedicated section within a savings account that allows you to set aside funds for specific purposes. These funds are typically separated from your main account balance, and many users treat vaults as mini-savings accounts with unique goals, such as saving for a vacation, an emergency fund, or a down payment on a house.
Example of Usage: You may have a savings account with $5,000, but you can allocate $1,500 to a vault for emergencies, $1,000 for vacation, and $2,500 for your child's education.
Key Characteristics of Vaults:
- Sub-account Structure: Vaults are usually nested under your main savings account, and the funds within each vault are clearly designated for specific purposes.
- Interest-Earning: Just like your main savings account, the funds stored in vaults often continue to earn interest.
- Goal-Based Saving: Vaults encourage financial discipline by letting you set aside money for different financial goals.
3. How Vaults Differ from Traditional Savings Accounts
While traditional savings accounts serve as a general-purpose place to store money and earn interest, vaults introduce targeted financial planning. Here’s a comparison:
| Feature | Traditional Savings Account | Vault in Savings Account |
|---|---|---|
| Main Purpose | General savings | Goal-specific savings |
| Structure | Single account | Sub-accounts within main account |
| Interest | Earns interest | Earns interest (same rate as main account in most cases) |
| Funds Separation | Not separated by goal | Funds allocated to specific goals (e.g., travel, emergency) |
| Accessibility | Can be easily accessed anytime | May require a transfer to the main account for withdrawal |
4. Setting Up and Managing Vaults
4.1. Setting Up Vaults
Vaults can typically be set up through your bank’s mobile app or online banking portal. Here’s a basic process for setting up a vault:
- Log In to Your Savings Account: Access your savings account via your bank’s digital platform.
- Create a New Vault: Look for a “Create Vault” or “Add Vault” option within your savings account.
- Name Your Vault: Choose a name that reflects your saving goal (e.g., "Emergency Fund," "Vacation Savings").
- Set a Goal Amount: Many banks allow you to set a specific target, such as saving $5,000 in one year.
- Allocate Funds: Transfer the desired amount from your main balance into the new vault.
4.2. Managing Vaults
Once your vaults are set up, you can manage them by:
- Monitoring Progress: Check how much you’ve saved toward each goal.
- Transferring Funds: Move money between your main account and vaults as needed. Some platforms even allow for automated transfers into vaults on a set schedule.
- Adjusting Goals: Update the goal amount if your financial needs change over time.
5. The Benefits of Using Vaults in Savings Accounts
5.1. Organized and Targeted Savings
One of the primary benefits of vaults is that they help you organize your savings and allocate funds toward specific goals. Instead of mixing all your savings in one lump sum, vaults enable you to manage your finances with purpose.
5.2. Enhanced Financial Discipline
With vaults, you can establish clear boundaries around your savings goals. This reduces the temptation to dip into money intended for other purposes (such as using emergency funds for impulse purchases).
5.3. Greater Transparency
Vaults offer greater transparency in tracking your savings. You can easily see how close you are to reaching your savings goals without manually calculating or separating the funds on your own.
5.4. Automatic Savings Features
Many banks and fintech platforms offer features like automatic transfers into your vaults. You can set up recurring transfers from your main account to the vaults on a weekly or monthly basis, helping you save more consistently.
5.5. No Separate Accounts Required
With vaults, you don’t need to open separate savings accounts for each goal. You get the convenience of managing all your savings under one account while still categorizing your funds.
6. Potential Downsides of Vaults
6.1. Transfer Limitations
Depending on your bank’s policies, you may need to transfer money from a vault back into your main account before making a withdrawal. This extra step may take time, particularly if the bank does not allow instant transfers.
6.2. Not Available at All Banks
Vault features are more common in digital banks and fintech platforms. If you use a traditional bank, they may not offer this feature, and you may need to create separate savings accounts instead.
6.3. Lack of Separate Account Protections
Since vaults are part of a single savings account, they don’t offer the separate account protections that would come with having multiple accounts. If your bank freezes or places restrictions on your main account, all your vaults could be affected as well.
7. Which Banks and Platforms Offer Vaults?
7.1. Revolut
Revolut is a digital bank that offers Savings Vaults within its app. You can create multiple vaults for different goals, round up spare change into vaults, and automate savings.
7.2. Monzo
Monzo, a popular online bank in the UK, offers vaults known as Pots, allowing users to set aside money for specific purposes. You can also set savings targets and track your progress toward each goal.
7.3. Chime
Chime offers a feature similar to vaults, known as Automatic Savings, where you can round up transactions and set up recurring transfers into your savings.
7.4. N26
N26, another digital bank, offers Spaces, a vault-like feature that allows users to set aside money for specific goals and track their progress separately from the main account balance.
8. Tips for Using Vaults Effectively
8.1. Prioritize Emergency Savings
It’s recommended to prioritize setting up an emergency fund as one of your first vaults. Having a safety net for unexpected expenses can prevent you from relying on credit cards or loans.
8.2. Set Realistic Savings Goals
When creating vaults, set achievable and realistic savings goals based on your income and expenses. This will keep you motivated and on track without feeling overwhelmed.
8.3. Automate Your Savings
Take advantage of any automatic transfer features offered by your bank or platform to ensure consistent savings without needing to remember manual transfers.
9. Conclusion
Vaults are a valuable tool for those looking to organize their savings and achieve specific financial goals. Whether you’re saving for a vacation, an emergency fund, or a major purchase, vaults offer a convenient way to segment your savings while earning interest in a single account.