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- There are many factors to consider when deciding how many bank accounts to have.
- Having multiple bank accounts can help with savings goals, but they can be hard to manage.
- No matter what, you'll probably want to have at least a checking account and a savings account.
For many people, financial management can be stressful, especially knowing what you should do with your money. It can be hard to figure out what bank accounts you should have, with all the different types of savings accounts and checking accounts there are.
How many bank accounts you should have will vary depending on your individual financial needs. We've provided some tips on how to figure out the bank accounts that are right for you.
Factors to Consider
Financial Goals
You'll need to consider your financial goals when deciding how many bank accounts to have. For example, is there something you're trying to save up for? Depending on your situation, you might want a bank account just for that savings goal. Different banks and bank accounts will also be useful for different savings goals.
Expense Tracking and Budgeting
Balancing multiple savings and checking accounts can be both helpful and problematic when learning how to budget.
On one hand, having different bank accounts for different goals can help you keep track of what money you actually have available. For example, if you have a savings account just for your emergency fund, it's less likely that you'll dip into that account by accident and end up spending that money on something non-essential.
On the other hand, if you have too many bank accounts, you might end up forgetting about some of them, leaving money on the table and potentially racking up monthly bank maintenance fees.
Types of Bank Accounts
Checking Accounts
Checking accounts are a type of bank account designed to be used for spending, generally letting you make unlimited withdrawals and providing tools such as debit cards to make spending easier. While there are some high-yield checking accounts, the vast majority of checking accounts don't earn interest.
Almost everyone should have a checking account for everyday purchases. Jerel Butler, CFP, financial planner at Zenith Wealth Partners, recommends people have two checking accounts, "one that is primarily for your fixed expenses, and one for your discretionary expenses."
This lets you keep track of what your money is going towards month-to-month easier, which can be helpful if you're using something like the 50/30/20 rule to budget.
Savings Accounts
Saving accounts, unlike checking accounts, generally let you earn interest, with the best high-yield savings accounts earning more than 4% annual percent yield. In exchange, many savings accounts limit how often you can withdraw money. This means that savings accounts are a great choice for funds you need to be able to access anytime, but that you don't expect to frequently withdraw from.
Christopher Stroup, CFP, financial planner for Abacus Wealth Partners, says having a high-yield savings account for your emergency fund is great for providing easy access to your money in emergencies while still being able to earn interest. "You are receiving some kind of yield," he says, "and you're not necessarily locked into or have a penalty if you have to touch those funds."
Specialized Accounts
While checking and savings accounts are important for almost everyone to have, there are other, more specialized accounts, such as certificates of deposit or money market accounts, that people might want to use for more specific goals.
CDs generally offer a slightly higher interest rate than savings accounts, depending on the bank. The best CD rates can be as high as 6% APY. They also offer a fixed interest rate, meaning that its interest rate won't change for the entirety of the CD's term length. But they also don't let you withdraw money from them until the term length is finished.
Stroup says that CDs can be good if you have some funds you know you won't touch for a while; for example, if you're planning on buying a home in two or three years and you want to save for a down payment. "That could be a great way to build some of that fund while you're saving into it."
Pros and Cons of Multiple Accounts
Easier Budget Management
One of the benefits of separate accounts for budgeting is it can help you keep track of individual savings goals. For example, if you just have one checking account that you keep all your money in, it's very easy to accidentally dip into your emergency funds, leaving you with less than you need if you lose your job or have an emergency medical expense.
In comparison, if you have a checking account for your daily spending and a savings account for your emergency fund, you'll have an easier time telling exactly how much money you have saved up in case of an emergency, and you'll be less likely to accidentally spend it. Savings accounts with buckets can also make it easier to save for goals.
Potential for Higher Interest Rates
Financial planning with several bank accounts means you can diversify what accounts you have and where, potentially earning higher interest rates in the process.
For example, online banks generally offer a higher interest rate than brick-and-mortar banks, but you can't bank in-person with them, which can make some things, like depositing cash, harder. If you have multiple accounts, you can keep some of your money in an online bank for the better APY and keep some of it in a brick-and-mortar bank for when you need access to in-person banking.
Complexity in Managing Multiple Accounts
Unfortunately, one drawback to managing numerous bank accounts is you'll spend more time keeping track of them. "I think having a system in place is good, but you can overcomplicate it pretty easily," says Butler. He says to keep your personal preferences in mind and know how many bank accounts you'll want to keep up with.
Risk of Higher Fees
Each bank account has the potential to come with extra fees, whether that be monthly service fees, overdraft fees, or other types of bank fees. If you have too many bank accounts, you could end up paying more fees than you expected, especially if you lose track of what accounts you have.
Strategies for Managing Multiple Accounts
Using Budgeting Apps and Tools
One personal finance strategy for account organization is to use budgeting apps and other tools designed for managing money. If you're using multiple bank accounts to structure your savings goals, for example, you can keep track of how much money is in your account by seeing how much money you've put toward that savings goal. That will also help you keep track of what savings goals you're meeting, and what savings goals you might be letting slip.
There are even some mobile banking apps that let you manage all of your accounts, no matter what bank they're at, says Stroup. "Depending on your bank, they allow you to link outside accounts," he says. If that's important to you, check with your banks ahead of time to see if that's a tool their mobile banking apps offer.
Automating Transfers and Payments
Another useful tool for keeping track of your bank accounts is by automating your paychecks and bill payments. "If you have a particular budget for your fixed expenses, one thing you could do is auto draft your utilities and bills out of that fixed expense account," says Butler. This means you don't have to go into your bank account every month to pay bills; it just happens automatically. This also keeps you from missing payments.
Ideal Number of Bank Accounts
Ultimately, the number of bank accounts you need will depend on your individual financial goals. That being said, both Stroup and Butler have recommendations on how many accounts to start with for personal use.
Stroup recommends having at least two bank accounts: a checking account for your day-to-day transactions, and at least one savings account, depending on your financial goals. "From there, it really depends on your situation."
Butler says that he usually recommends three bank accounts: a checking account for fixed expenses, a checking account for discretionary spending, and a high-yield savings account.
Both Stroup and Butler recommend having separate business savings accounts and checking accounts if you're self-employed or run a business. "Make sure that you maintain your account system properly and do not commingle funds," says Butler.
Multiple Bank Account FAQs
Multiple bank accounts can help separate money for different purposes, such as everyday spending, emergency savings, and specific financial goals. This may make it easier to manage your budget.
Managing multiple accounts can be challenging. It could potentially lead to missed bill payments or common bank fees if you're not managing your account.
Use budgeting tools and apps to keep track of all your accounts. You can also automate transfers to savings after you get a paycheck and set up alerts to monitor account activity and balances.
The optimal number of bank accounts varies for each person. It may depend on their financial situation, savings goals, and bandwidth for managing multiple accounts.
Having multiple bank accounts does not directly affect your credit score. However, managing your accounts responsibly is important to maintain financial health.
