A savings account is an excellent place to keep your hard-earned cash. But how many savings accounts should you have? This depends on your savings goals.
Whether you’re saving money toward a down payment on a home, a vacation, a wedding, or emergency expenses, setting up multiple savings accounts for each goal could help you keep tabs on your progress. And when you want to tap into those funds, you can do without affecting other savings goals.
Having multiple savings accounts could make sense if you want to set aside money for different goals while growing your balance. Read on to learn the benefits of having multiple savings accounts and the types of accounts you should choose to hit your savings goals faster.
Should You Put All Your Savings into One Account?
A savings account gives you a place to store money. However, limiting yourself to a single account isn’t the best approach. Creating multiple savings accounts helps you manage money better and stay on top of your goals. Banks don’t have limits regarding how many savings accounts you can open.
Is It a Good Idea to Have Multiple Savings Accounts?
Having multiple savings accounts can help you reach your savings goals faster. It makes it easier to separate those goals and track your progress. You can even prioritize specific goals and automatically allocate a portion of your paycheck each month.
Let’s say you have three savings goals: an emergency fund, a down payment for your dream home, and a vacation. You could establish targeted goals toward each:
- $3,000 for your emergency fund
- $5,000 for a down payment
- $1,000 for vacation
You can also break these goals down further by allocating each a time frame. For example, say you want to hit your $5,000 down payment goal in five months; you’ll need to save $1,000 each month. This way, you can reach your goals faster.
Reasons For Having Multiple Savings Accounts
Having multiple savings accounts comes with several benefits. We have outlined some reasons to create several accounts.
Makes Achieving Financial Goals Easier
Each savings account has a purpose. For example, you can set up a savings account for emergency funds and another for investments. Monitoring how much money you deposit into each account lets you track your progress.
Makes Budgeting Easier
Keeping your money in the same savings account can lead to overspending. If you’ve withdrawn money from the account before, nothing will stop you from doing it again.
Consumers with multiple savings accounts can distinguish between spending money and savings. You can deposit a portion of each paycheck to savings accounts designated for investments, tuition, a down payment, and other expenses. Then, you can spend the remaining money on other expenses.
Reduce The Chance of Misspending
Everyone is prone to misspending their money, but separating accounts makes you less susceptible. You can move some money to emergency and investing accounts before spending a penny.
Having fewer funds spread across multiple accounts will make you feel as if you have less money to spend. You can also transfer funds to accounts from different banks to make it more challenging to overspend.
Multiple Bonuses And Rewards
Banks offer bonuses and rewards to people who open up new accounts and fulfill specific requirements. Most bonuses and rewards revolve around making a minimum deposit and holding funds in the account for a set amount of time.
These bonuses and rewards are an excellent way to grow your savings without lifting a finger. You can create savings accounts in several banks to capitalize on more of these bonuses. Many banks offer $100-$200 if you open a new account and make a qualifying deposit. Unfortunately, you can’t continue receiving bonuses and rewards for creating multiple savings accounts with the same bank.
Keep in mind that bonuses and rewards are subject to income tax, especially if you earned them without spending your own money.
Multiple FDIC Insurances
The Federal Deposit Insurance Corporation adds an extra layer of protection to your funds. FDIC-insured banks protect up to $250,000 per depositor. If the bank fails, you’ll get reimbursed. Some people accumulate more than $250,000 in a bank account, leaving some funds uninsured.
Creating multiple bank accounts gives you more coverage. For example, you can be fully insured if you have $400,000 spread across two accounts. However, keeping all of that money in a single savings account leaves $150,000 uninsured. The more money you save, the more critical it becomes to have multiple accounts for money protection.
Take Advantage of Higher APYs
One primary goal of putting money into a savings account is to hit your goals and grow your idle cash. As a result, banks and credit unions offer competitive interest rates to attract new customers. The interest rate matters because it determines how fast you’ll grow your money.
Not all savings accounts are the same when it comes to annual percentage yields (APY). That’s why spreading your money across different savings accounts can help you take advantage of higher APYs.
Types Of Accounts You Should Have
There are different types of accounts that can help you hit your savings goals. Here are some savings account ideas to get you started:
Checking (Spend) Account
The checking account covers everyday expenses. People with several bank accounts often put their paychecks in this account first before distributing money across other accounts.
You can create multiple checking accounts, but ensure your primary account has low or no monthly fees, mobile banking, and other perks.
Lifestyle Checking Account
This account is your “fun money.” These funds can go toward entertainment, dining out, fitness investments, and miscellaneous items. You can create multiple accounts to address different spending categories.
Bills Checking Account
A “bills” checking account addresses your mandatory monthly expenses. Calculate how much you spend on utilities, housing, vehicles, and other recurring costs.
Making late payments will hurt your credit score and lead to significant consequences if the bad habit continues. This checking account helps you keep up with bills and allocate paychecks properly.
Emergency Fund Savings Account
Life throws many surprises at us, but an emergency fund leaves us more prepared. You may get laid off or fired from your job. This kind of event would have a devastating impact on your finances, and it can take several months to land a new job.
Furthermore, you or a loved one may need medical attention in the future, which means high medical bills. Allocating some money to an Emergency fund each month helps you with the unexpected. Ideally, you should save at least six months’ worth of living expenses.
Goals Savings Account
Setting financial goals makes you more intentional about each purchase. You’ll spot opportunities to make more money and expand your career. Creating savings accounts for each financial goal gives your pursuit more perspective.
Aspiring homeowners can set a down payment goal and create an account for that savings goal. Other people may prefer saving up for a new car or a family vacation. You can create separate accounts for each goal, allocate every goal a time frame, and work on setting aside money according to priorities.
High-Yield Savings Account
A high-yield savings account is much like a traditional savings account but differs in terms of rewards. With a high-yield savings account, you can earn higher interest rates, allowing you to grow your money faster. If you’re looking for a savings account with an attractive yield, shop around for the best high-yield savings account.
Money Market Account
A money market account is a type of deposit account with a higher interest rate than a traditional savings account. Think of a money market account as a hybrid account with a mix of checking and savings accounts. They typically come with a debit card and check-writing privileges.
Long-term Goal Savings Account
We all have big dreams that come at a high price tag. Creating a long-term savings goal account lets you allocate money to goals that take over 12 months to achieve. Whether it’s a down payment for a house or car, a wedding, or a family trip abroad, setting aside money for these goals will help you attain them over time.
Short-term Goal Savings Account
This is a savings account for goals that take less than 12 months to achieve. It can be anything from upgrades to road trips and special gifts to friends and family.
Almost everyone has annual expenses such as car insurance. Therefore, stashing away funds for such costs is a smart move.
How to Manage Multiple Savings Accounts
It can be challenging to keep track of several savings accounts. It requires a bit of work to know how much money should go to this account, what each balance earns, and the fees charged by the bank or financial institution.
One of the easiest ways to manage multiple savings accounts is to go for fee-free accounts, which don’t require you to remember each account’s monthly fees and balance requirements.
You can organize your savings accounts in a spreadsheet. Then, when you open a new savings account, add it to the spreadsheet. If you prefer the digital way, several budgeting apps can help you monitor all your savings accounts. In fact, your bank’s mobile app can allow you to link external accounts and track everything in one place.
Things to Consider Before Opening Multiple Savings Accounts
It’s essential to do your research before opening a new savings account. Just because a savings account offers an attractive APY doesn’t mean it’s the best fit. Some accounts may require a minimum opening deposit or maintain a minimum daily or monthly balance to earn high interest. If your savings are spread across multiple accounts, it can be hard to meet these requirements.
Another thing to consider is fees. Some savings accounts have monthly fees, which can be waived if you meet specific requirements like maintaining a minimum balance. So, make sure you read the fine print before opening one.
Finally, an excess transaction fee is something else to look out for too. Most financial institutions limit savings accounts to up to six withdrawals per month. If you exceed this limit, you could pay a fee. In addition, with multiple savings accounts, you may find yourself transferring funds between accounts and risk exceeding the withdrawal limits imposed.
How Many Savings Accounts Should You Have? The Bottom Line
Every person has different financial goals. However, most people have more than one goal. No one only wants to pay the bills. People want to save up for important purchases, emergency funds, or a family vacation.
It doesn’t make sense to use a single savings account to accommodate all of your goals. Spreading your money across multiple accounts helps you measure progress toward each goal. You could also take advantage of cash bonuses and other rewards by creating savings accounts at different banks.
When choosing a savings account, consider things like fees, account minimums, and withdrawal limits.
