Let’s face it, we own multiples of the same product, be it streaming services, pairs of shoes, even cars. But what about bank accounts? After you open one account, how many more do you need to ensure you’re managing your money properly while taking advantage of attractive interest rates to grow it?
While you could technically get by with just one account, the reality is that having multiple accounts at banks and/or credit unions is a better way to manage and allocate your money into different categories to create successful strategies for your personal finances.
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Benefits of multiple accounts
Whether it be checking or savings accounts, there are a few good reasons to own more than one bank account.
Ability to take advantage of higher interest rates: It’s important to recognize that those multiple bank accounts can be at multiple institutions. So, while you might have one account at a brick-and-mortar bank that offers easy, in-person access, you can set up another bank account at an online-only bank that offers a savings account that pays a significantly higher interest rate to grow your cash faster.
Better separation between spending and saving: Multiple bank accounts can help create solid fences between buckets of cash. For example, you can automatically deposit 15% of your paycheck in one savings account for longer-term goals to reduce the temptation to access it for your immediate spending needs.
A chance to compare service at multiple financial institutions: A bank account represents the beginning of a relationship. By opening accounts at multiple banks and/or credit unions, you can get a sense of how each of them services their customers. Then, when you’re ready to do more business, be it opening an investment account or applying for a car loan, you’ll know which one will offer a better customer experience based on your experience.
An opportunity to teach your family about money: If you have children, opening a savings account at a bank or credit union that promotes financial literacy, for example, provides an opportunity for adults to have meaningful conversations with their kids about money.
Drawbacks and risks of multiple accounts
Of course, owning multiple accounts can cause issues even for the savviest of money managers.
A bigger maze of minimum balance requirements: All bank accounts aren’t created equal. While one of your accounts might have no minimum balance requirement, another might require a $1,500 balance to avoid a fee, while yet another might require a $5,000 balance to earn the highest interest rate. Simply put, you’ll need to pay attention.
More work: You’ll need to be more vigilant when monitoring multiple accounts for fraudulent activity and to analyze each of your monthly statements. There’s more to track, so you need to devote additional time to review and manage your spending and saving activity.
The High 5 banking method
Peruse the internet and you’ll find plenty of recommendations to leverage the so-called “High 5” banking method. With this approach, you’ll need to go through the legwork of opening five different accounts. Here’s a rundown of how each of them works:
- Checking Account #1 -- For your regular bills: This checking account is designed to cover all your recurring bills. If, for example, you arrange autopay for your mortgage, car loan, gym membership and insurance premiums, they can all come out of this account. You’ll start the month with the necessary balance and replenish it before the next cycle of payments begins.
- Checking Account #2 -- For your other expenses: This second checking account is for your everyday spending. With this separate checking account, you can use a debit card to cover such purchases as coffee, lunch and shopping activities, the money of which will be deducted from this checking account.
- Savings Account #1 -- For your emergency fund: Your foundational savings is your emergency savings fund. Depending on your needs, this traditional savings account will have a balance that’s enough to cover three- to six- months’ worth of your living expenses. It’s a separate account entirely and only used in the event of an emergency.
- Savings Account #2 -- For what’s on the immediate horizon: After you have stashed away your emergency fund, you can start saving up forshort-term expenses. Some of these might be essential, such as a new car, while others might be for fun, such as a spring break getaway. By keeping a separate savings account, you’ll be able to have enough money to immediately pay off those charges on a credit card and avoid taking on any debt.
- Savings Account #3 -- For what’s in the distant future: The final account for your portfolio is an account reserved for long-term goals. Perhaps you’re looking to save for a down payment for a house. This is the account to do so. It should have the highest rate possible, such as a high yield savings account, to take advantage of compounding interest as you keep putting money away.
That’s a lot of accounts, right? The High 5 banking method isn’t a must for everyone. In many cases, one checking account will suffice -- especially if you’re good at monitoring your balance and analyzing your spending on a regular basis.
When it comes to saving, it’s important to note that some banks offer the ability to create separate account buckets in a savings account, which can eliminate the need for opening three different accounts. For example, Ally and Capital One both offer a feature that lets customers create separate savings accounts within one larger framework. It’s a bucket-based system that lets depositors take advantage of a competitive rate -- both institutions are in CNET’s picks for best savings accounts -- while keeping money in separate funds. Consider it a psychological trick that helps you think about your emergency fund in a different way than you would think about your vacation fund.
How to manage multiple bank accounts efficiently
No matter how many bank accounts you decide to have in your name, follow these three simple tips to make the most of all of them.
- Set up account alerts for transactions: The more accounts you have, the less likely you’ll have time to look at each of them daily. Because online identity theft is a huge problem, it means you need to have a system in place to know if your bank account is compromised. If you have accounts that you don’t use on a regular basis, be sure to enable alerts anytime money moves in or out of them. This way, if anything suspicious happens, you can immediately notify the bank.
- Make the most of your earning potential: One of the biggest perks of having multiple bank accounts is an opportunity to open one with a high interest rate. That rate only matters, however, if you’re keeping as much cash there as possible. Make sure you’re not storing too much money in a checking account that pays little or no interest while missing out on a growth opportunity in another account.
- Look out for debit card transaction minimums: If you open a rewards checking account, you’re going to need to perform a certain amount of qualifying activities to actually earn those rewards. Be sure to know of any debit card transaction threshold so you can hit that number each month.
FAQs
It depends on your short- and long-term financial goals. You should have a separate checking account for spending and multiple savings accounts for, you guessed it, saving. However, you may want to have additional types of each of those accounts to help with your budgeting needs and your big-picture saving strategy. For example, you might want to keep your emergency fund in one savings account and your money for other expenses such asyour next summer vacation, or your next car purchase in another account such as a money market account.
Yes. At the very least, you should have two: a separate checking and savings account to distinguish between funds you plan to spend and funds you plan to avoid using. Often, it can make sense to have additional savings accounts that can help you plan for bigger life goals such as another bank account for saving for a down payment for a home.
Having multiple bank accounts may mean juggling different minimum balance requirements and fee structures. So, you’ll want to make sure that you have a solid understanding of the costs associated with each of your checking and savings accounts to make sure you don’t pay more than you need to maintain all of them at the same time.
Depending on your needs, having two checking accounts can be a wise move. For example, you might set up one checking account for all your autopay bills and have another checking account for everyday spending. Or, if you’re self-employed, one checking account might be for your personal spending and another might be designated for your business expenses.
No. Your credit score is based on how you handle paying back loans and managing your credit cards. As long as all of your checking and savings accounts are in good standing -- meaning you aren’t racking up nonsufficient fund fees -- there’s no reason to worry about having multiple bank accounts.
The most recent data shows that the average American has 5.3 accounts. Those numbers are from Mercator Advisory Group, part of Javelin Strategy & Research.
