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With the rise of the internet and online banking, opening multiple bank accounts is easier than ever. Maintaining more than one bank account can have several advantages, including separating your spending categories and earning a higher interest rate on savings account balances.
On the other hand, too many accounts can be difficult to manage. So, how many bank accounts should you have? Here's what to consider.
How many bank accounts should I have, really?
For some people, one or two bank accounts may be just fine. For instance, you may prefer a single bank account if you like to keep things simple or your budget is uncomplicated. However, as your finances get more complex and you accumulate more savings, you may find that having more than one bank account makes it easier to budget and track your expenses.
At the very least, you should have a checking and savings account. But you may want to open other accounts, depending on your preferences and goals.
Here’s an overview of the common types of bank accounts that exist and what each one is best used for.
Checking account
One account everyone should have is a checking account for everyday transactions, such as rent or mortgage payments, utilities, and other bills. A checking account can also help you manage your discretionary spending, such as eating out or going to the movies.
Keep in mind that there are many different types of checking accounts, all with different features and benefits. You may want to consider a free checking account, which means there are no monthly maintenance fees or other fees required to keep your account open and in good standing.
You may also consider a high-yield checking account or rewards checking account to maximize the return on your balance or a second-chance checking account if you’ve had issues in the past.
Savings account
A savings account is a key component of maintaining financial stability. You may save for various purposes, including short-term goals like an emergency fund and long-term goals like funding your child’s education.
Ideally, choose a high-yield savings account. These accounts earn much higher rates than traditional savings accounts. Earning a higher rate on your savings balance helps prevent your money from losing purchasing power due to inflation.
Savings goals vary, but keeping your money in a savings account can help you stay on track with your financial goals. Some people prefer to maintain multiple savings accounts for short-term and long-term goals. Alternatively, some savings accounts offer a “bucket” feature that allows you to divvy funds across multiple, separate savings goals within a single account.
Certificate of deposit (CD)
A certificate of deposit is another type of bank account that typically pays higher interest rates than a standard savings account. CDs come in a range of terms, from a few months to several years, during which your interest rate is fixed. However, you can’t access your funds until the term is up and the CD matures. Otherwise, you’ll be subject to an early withdrawal penalty.
Read more: Is paying a CD early withdrawal penalty ever worth it?
CDs are a good option for savings you don’t plan to access for an extended period of time. For example, if you’re planning to purchase a house in one year, you could put your down payment money in a CD and earn a competitive fixed rate on the balance until you’re ready to buy.
Money market account (MMA)
Another popular kind of account you may use for savings is a money market account. These accounts are useful because they have features of both checking and savings accounts. For instance, they often pay a higher interest rate — similar to a high-yield savings account or CD — but may also come with a debit card and personal checks. This can be beneficial if you want easy access to your money.
Pros and cons of having multiple accounts
Having multiple bank accounts can be helpful for several reasons, but there are drawbacks too. Consider the following pros and cons:
Pros
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Better budgeting and organization: Having multiple accounts can help you earmark funds for different purposes and avoid dipping into savings.
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More FDIC coverage: The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per financial institution. If you have more than $250,000 in cash and savings, spreading your money across a few banks ensures that all of your funds are protected.
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Access to more features: You can optimize your accounts to take advantage of key features. For example, you might have a free checking account at a local credit union while your savings are held at an online bank to earn a higher savings rate.
Cons
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Harder to manage: Keeping track of balances, account requirements, and activity across several banks can be confusing without a good system in place.
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May incur fees: Some banks charge monthly maintenance fees or other fees for falling below a minimum balance. By having funds split among multiple accounts, it can be more difficult to ensure you’re taking the necessary steps to avoid fees.
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Risk of overdraft: Spreading money too thin could lead to insufficient funds in one account, causing you to overdraft.
Tips for managing multiple bank accounts
Managing multiple bank accounts can be tricky, especially if you maintain several accounts across different banks. But the benefits are worth it — you just need to stay organized.
You can reduce confusion by clearly indicating each account’s purpose, such as designating it for fixed monthly expenses or discretionary spending. To make things even simpler, sign up for a budgeting app that allows you to quickly see all your accounts and balances in one place.
When considering different accounts, look for ones that earn competitive interest rates and have minimal fees. This will save you money and can grow your savings over time.
You can also automate transfers to accounts (from your checking to your savings or money market account, for example), reducing the need to log in frequently. For instance, each time you get paid, you can transfer a fixed amount into savings. Then, you can log in to your accounts monthly, checking that they are in good standing and that you don’t have any unexpected transactions.
Lastly, and most importantly, stay consistent once you have your systems in place. Your checking account is for managing income and monthly expenses, while your savings account is for your emergency fund and longer-term financial goals. Other accounts, such as CDs and money market accounts, can serve different savings goals. However, what’s most important is picking a strategy and sticking to it. This will help you exercise good financial habits and build your savings over time.
