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Last year BB&T, a regional bank in Winston-Salem, North Carolina, experienced a systems outage affecting ATMs, online banking, and the company’s mobile app.
It resulted from an equipment malfunction at one of their data centers and did not expose customer information to identity theft. However, customers were left with no way to check their balances.
Many of them worried themselves sick that their automatic deposits might not go through.
Systems outages are reason enough to have more than one bank account. Here are some other reasons not to put all your eggs in one basket:
1. You Need At Least Two Accounts
When you’re in debt or heroically trying to stick to your budget, the thought of juggling multiple bank accounts might seem overwhelming. But it can make your financial life so much easier!
With one bank account, you might miscalculate and accidentally spend money that was meant for something else. But when you have more than one, each spending and savings category can have its own dedicated account.
This makes screwups harder to do. Some people call this the “bucket” strategy (not to be confused with bucket lists). At the very minimum, you need two: a savings and a checking account.
Keep most of your money in a savings account. If you keep your savings separate from the cash you use for everyday expenses, you won’t accidentally spend money meant for savings.
A savings account shouldn’t be used for everyday expenses. That’s because just like its name implies, it should only be used for things you’re saving up for.
Some people use multiple savings accounts like others use the envelope system. Compartmentalizing your money simplifies keeping track of it, making budgeting more successful.
This makes it super easy to save up for the things you want. Without targeted accounts, you’re more likely to raid your savings account for purchases not related to the things you’re saving up for.
This is a good way to sabotage your financial future!
Having multiple savings accounts is a bit of a trick. By labeling an account with the name of what you’re saving up for, you mentally put a fence around it. This makes it off-limits, and you’ll be less likely to touch it.
The best way to keep your money “hands-off” is by using an online bank. This way, it’s harder to get your money because it usually takes three to four days for the bank to issue you a check.
Usually, the highest interest rate is earned by online banks because they don’t have the overhead that financial institutions with branches in the real world have.
The top online savings accounts are all very competitive and keep their rates within a few points of each other.
If you want to be more aggressive with your savings, open up money market accounts and CDs. If you don’t need the money right away, you can put the money you’re saving up for big purchases in these type of accounts.
Two Checking Accounts
Saving accounts are for your long-term savings goals. Checking accounts, on the other hand, are for times when you need to access money quickly.
You should have two checking accounts. Dedicate one account to paying bills, and the other for everyday expenses like groceries and gas. This way, you won’t have to worry if your check to pay the electricity is going to bounce if you make a quick stop at Safeway.
Get checking accounts that earn you interest. This kind requires a higher account balance, but you’ll make some cash while still getting easy access to your funds.
A joint account can be your “money hub”—the nexus for every aspect of you and your spouse’s financial existence. All of your money should get deposited in this account.
Then, it can feed your other accounts that radiate outwards from this main account like spokes on a bike.
Joint checking accounts can be for shared expenses if you’re married or living with someone. Use them to pay recurring bills such as rent, mortgage, utilities, and other household expenditures.
An individual checking account can be used for expenses that are yours alone. By using one, you’ll ensure that a gift you bought for your spouse remains a surprise.
Business Checking Accounts
If you own a business, open up a business checking account in addition to having a personal one. This way, you’ll be able to track personal and business expenses separately.
Even if you’re just a sole proprietor, you need to have separate checking accounts for your business and your personal life.
Open a new checking or savings account if it comes with a sign-up bonus of two hundred dollars or more. By doing this multiple times in one year, you can earn a few thousand dollars.
If it’s only $50 – $100 you’ll earn, it’s really not worth the trouble.
Switch to Higher-Rate Interest Accounts
If a new account will garner you a couple of hundred dollars extra in one year, it’s worth switching over if it has a higher rate of interest.
2. You’re Living Paycheck to Paycheck
8 in 10 Americans are mired in the vicious cycle of living paycheck to paycheck. If this describes your situation, you’re not alone. Nearly 70% of Americans have less than $1,000 in savings, and this includes individuals making more than $75,000 a year.
This proves that earning more money won’t mean you’ll automatically have more savings. To do that, you need to put systems in place to make sure that happens.
One way to do this is to budget what you need to live on every month. Then, deposit that money into your checking account. Everything else goes into your savings account.
3. It Doesn’t Affect Your Credit Report
When you apply for a new bank account, the bank will most likely run a credit report on you via ChexSystems, which is a credit reporting agency strictly for banking.
This is only for flagging the most egregious sorts of banking behavior like bouncing checks and racking up overdrafts and has nothing to do with other types of credit reports.
While having too many credit cards can definitely hurt your credit score, the same isn’t true with too many bank accounts. You just have to make sure you’re not accruing fees you’re not paying or being irresponsible in other ways.
Ask for a free copy of your yearly ChexSystems report to check for errors. If there’s a bank account listed you don’t remember opening, this could be a sign your identity was stolen.
4. You Know Exactly How Much You Have to Spend
When you keep your spending accounts separate from your savings accounts, you know exactly how much you have left to spend on everyday things.
This makes it easier for you to get what you need without poaching from accounts meant to give you a better financial future.
5. Easier to Track Savings Goals
The main reason to have more than one savings account is to track individual savings goals. When the money isn’t earmarked for anything in particular, it’s easier to dip into it.
For example, if you have an account for entertainment and you party a little too much one night, your other accounts won’t be affected. That’s because you subsidized your overindulgence with money that was intended ONLY for that purpose.
Now, you might be looking at weeks of sitting at home staring at the walls because you don’t have any money left in your entertainment budget. Poor you.
But at least you didn’t blow money you weren’t supposed to!
A single account with all of your money for your savings goals lumped into one makes it harder to tell if an individual goal’s been reached. By having one account for a vacation fund and another for a house down payment, each of your goals will be compartmentalized and targeted.
If you’re in the habit of carrying a credit card balance after you go on vacation, set up a dedicated vacation savings account one year before you depart. Or, set up a savings account to pay off your taxes if you’re expecting a big tax bill next year.
For bills like this, multiple bank accounts can be a godsend. That’s because by socking away money each month for these expenses in a dedicated account, you’ll make sure you have money to pay them at the end of the year.
Having more than one savings account is an excellent strategy because it creates an exact plan for your money.
Without a plan, your money is more likely to be frittered away.
This method forces you to save up until you have enough money to buy what you have your heart set on instead of using a credit card for the purchase.
Your Emergency Fund
One of your savings accounts should be an emergency fund with three to six months of living expenses. Dip into this money if you lose your job or get a whopping medical bill that’s not covered by insurance.
The funds should be quickly accessible, so they probably should be in a high-yield checking account. If you have your emergency fund in a savings account that earns a relatively high-interest rate, you’ll be less likely to poach from this account.
Think of your emergency fund like it’s a fire extinguisher encased in glass. Break the glass only if you find yourself in dire straits.
A Goal for Each Account
After setting up your accounts, create a goal for each of them.
Money means nothing without an exciting goal to work toward. So save for something specific and not merely for the sake of saving.
With a goal for each account, you stay motivated as you watch your money grow. Think about it in this way: you have a choice between putting $10.00 in a savings account only because you have an abstract goal to save as much as you can. Or, you can enjoy a refreshing Cinnamon Roll Frappuccino on a sweltering day. Which choice are you going to make?
Now if the choice is between that same latte and saving $1,500 for a trip to Honolulu, you might choose differently. That’s because you now have a goal that’s more meaningful than merely getting something to drink.
It’s incredibly satisfying to watch a goal move closer to becoming gloriously real the more money you deposit in an account.
Go over these goals every month to make sure you’re still on track. Once you accomplish one savings goal, you’ll have more money to save for another.
Before you know it, you’ll be saving like a pro. If you don’t have a budget with built-in savings goals, do it ASAP!
Just make sure juggling multiple accounts isn’t distracting you from your most significant financial priorities, which are things like saving up for retirement or a house.
Don’t try to open too many accounts at once, because this will only overwhelm you. For example, start by setting up an emergency fund. Once you have this going, move on to setting up other accounts.
6. Best of All Possible Worlds
Some people stay with one bank their entire lives out of a sense of loyalty. Others love the simplicity of having all their accounts at one financial institution.
Keeping all your accounts at one bank means that the bank has more of an incentive to nurture a relationship with you. They want to keep you and your money around, which could mean more perks like better interest rates or loan terms.
While using just one bank might be the simplest solution, it’s not necessarily the best one.
When you cultivate relationships with more than one bank, you get the best of all possible worlds. That’s because you can take advantage of the most attractive perks offered by each financial institution.
For example, say one financial institution had ATM access while the other had a higher interest rate but no ATM access. You could use the first bank for everyday expenses, and the second one for your savings accounts.
Another reason to have relationships with more than one bank is the bank with the best checking accounts might not have the most competitive CD or savings rates.
7. Capitalize on Interest Rates
When you have more than one bank account, you can transfer funds from one account to another when interest rates increase.
This way, your money will always earn the highest amount of interest.
8. Protects High-Balance Accounts
FDIC has strict limits of how much of your money is insured in a single bank account. They protect each account up to $250,000 for an individual account and $500,000 for a joint one.
If you’re approaching that limit at one bank, open an account at another bank so that you’re protected.
9. Protects Against Bank Failure
If you’re worried that the bank you have your money in could fail, considering opening up another account at a different bank. While the FDIC insures your bank in the event it goes under, it might take a while for the feds to give you your money back.
There are other ways banks can fail besides financially collapsing. Data breaches, IT outages, and natural disasters could freeze your account at one bank. If you have a backup account at another bank, you won’t be up the creek.
10. Make Banks Compete for Your Business
Make banks compete for your business. Then, when you apply for a mortgage or other financial product, you’ll get the best rates and terms options.
You can also try out different banks to gauge their level of service and see which one has the best perks.
Reasons You Might NOT Want Multiple Accounts
- MINIMUM BALANCE REQUIREMENTS: For some accounts, you have to have a minimum balance of $2,000 to accrue interest or avoid paying fees. It’s hard to do that for multiple accounts.
- YOU SAVE MONEY: Some banks have reduced fees or waive them altogether for customers who have all their accounts with them. So, by having multiple accounts at the same bank, you save money.
- TOO CONFUSING: You might find too bewildering to decide what money goes where. Say you receive an unexpected windfall of $500. Which savings account does that go into?
- TOO HARD TO KEEP TRACK OF: The more accounts you have, the more statements you’ll have to monitor and balance. This puts you at risk of making an overdraft.
- HARDER TO CATCH FRAUD: It’s crucial to stay on top of your financial affairs, so you know about fraudulent activity as soon as possible. Multiple accounts make that more difficult. Also, a bank might make an error. The fewer accounts you have, the more likely you’ll be to catch mistakes.
- MORE EXPOSURE TO FRAUD: More accounts could increase your exposure to fraud and identity theft because you have more bank statements floating around.
You should personalize how you handle your finances, which is why everyone doesn’t need the exact same number of bank accounts.
In the end, there’s no perfect number of bank accounts that everyone should have. You can have a zillion accounts if you want.
Think about your goals and how much time and energy you want to spend managing your accounts.
Each account you decide on should be opened and used for a specific purpose. Decide what purpose that is, and then find banks that best serve that purpose.
It takes massive amounts of mental energy to juggle multiple accounts. Someone who’s disorganized might have trouble keeping up. If you’re supremely organized, then having more than one account might make sense for you.
Just don’t go overboard.
Having multiple accounts can be addictive. Some people start accumulating bank accounts like others collect old coins.
And soon, there’s a bunch of accounts floating out there with forgotten passwords racking up low balance fees.
Don’t let that happen to you!