How Many Bank Accounts Should I Have?
A friend once said to me, “The more money I earn, the better I feel; but the more bank accounts I have, the more confused I get.” If that describes your present situation, then you have arrived at the right blog post. The solution to organising your bank accounts is here.
Your financial goals should determine the number of bank accounts necessary for you to enjoy all the benefits of banking. Two accounts—one checking and one saving—have traditionally been enough. But, nowadays, you need to have more than two, and we will show you how to own multiple bank accounts without feeling confused, disorganised, or stressed.
Reasons for Opening Multiple Bank Accounts
Although it may appear that having just one bank account to manage makes life much easier, there are still some instances in which keeping multiple accounts makes perfect sense. You need to have many different bank accounts for a variety of reasons that include but are not limited to the following:
- Tracking your savings: Individual savings goals can be easily tracked when you have multiple bank accounts.
- Personal budgeting: Just like having different envelopes for different spending purposes, your personal budgeting gets better when you put your weekly or monthly earnings into different accounts to take care of your planned and unplanned expenses.
- Separating finances: Multiple bank accounts can let you spend and save in a way that is ideal for your relationship if you and your husband or domestic partner decide to share household finances.
- Raising financially savvy children: Opening a joint bank account with your child can assist you in teaching them good financial habits. For instance, it can teach them to stick to a budget.
The Benefits of Having Multiple Bank Accounts
Combining different accounts can potentially give you several financial benefits, which include the following:
- Dedicated savings accounts: You can support your savings goals by setting up an automatic transfer of money from your checking account to your savings account. This spares you the stress of manually paying money into your savings account.
- Enhanced liquidity: You can earn interest and have continuous access to your savings with an online checking account or cash management account.
- Higher interest rates: Customers of traditional banks can benefit from the higher interest rates given by neobanks that offer savings accounts. Besides, switching from a regular checking account to a cash management account with an online bank can help you save money.
Apart from the highest favourable interest and other benefits you can possibly get from your multiple accounts, you also need to consider other terms and conditions that apply to them. Take note of the minimum balances, monthly fees, and other costs that may come with them so that you can choose a good mix.
Begin With a Checking Account
Now, your combination of two or more bank accounts should begin with a checking account—a current account for depositing and withdrawing cash as often as you wish. It allows easy access to your money but does not pay any interest.
Checking account for bills
Start by opening a checking account for the purpose of taking care of your weekly or monthly bills. Your money in this account can be used to pay for utilities, housing, insurance, loans, and any other bill. Having a debit card for this account is not recommended. You will not tend to spend your money for bills on other unplanned things if you use this account without a debit card.
Checking account for other expenses
To spend money on things other than bills, you can open a second checking account and have a debit card for it. This account can be used to take care of your expenses on meals at restaurants, entertainment, tickets to the cinema, gifts for friends, remittances, you name it.
Best checking accounts
Add a Savings Account
The next account you need to open is a savings account. It is also known as a deposit account. It allows you to deposit your money with the expectation of receiving a small amount of interest after a short while. A savings account normally requires you to maintain a minimum balance in your account.
Savings account for an emergency fund
An emergency fund is a money set aside for when something unexpected happens to you, usually something unpleasant. Because you only use this money in an emergency, it is best to just keep it apart from the accounts you use for bills and other savings. An emergency situation could be losing your job, receiving a huge hospital bill, or damaging your car in an accident. If any such events occur, use your emergency savings account to help yourself until, hopefully, things get better again.
Most experts advise that you put three to six months' worth of your spending aside in your savings account for an emergency fund.
Savings account for other goals
You should have another savings account for big projects like paying for a new house, buying a car, or paying for your wedding. You could even create unique savings buckets for each goal in one account if you choose a bank that allows you to save in digital pots or envelopes for multiple objectives. An example of such a bank is Monzo, which allows you to put money aside using Monzo Pots. This system makes keeping track of how much money you have set aside for each purchase much easier.
College saving / custodial accounts
If you are a parent, a college or custodial account is ideal for saving for your child's education. This type of account can help you save money for your child's education, from elementary school through college and beyond. Books, tuition, housing, and school supplies can all be covered with this savings account. Moreover, to allow your money to grow freely, taxes are not deducted from this kind of savings account.
If you are more interested in having an account that you can manage daily along with your kids, or one that your teens can use to learn to save, we have several options for you on our website. You can find the best bank cards and apps for kids and teens here.
Best savings accounts
Other types of accounts to pay attention to
Money Market Account
A money market account (MMA) is a type of savings account that offers a higher interest rate than standard savings accounts. It also lets the account holder use a debit card or cheque for cash withdrawals and payments. However, MMAs typically require you to maintain a high minimum balance to receive high interest on your savings and may limit the number of times you can access your money in a month. You can open an MMA with CapitalOne.
Cash Management Account (CMA)
A Cash Management Account (CMA) is a type of deposit account with a nonbank financial institution. It offers attractive interest rates. It is a single account that has many of the features of savings, checking, and investment accounts. This type of account is popular among investors since it is great for managing fixed-term savings. In many instances, with your CMA, you can write checks, deposit funds remotely, pay bills online, access cash from ATMs, use debit and credit cards to make purchases, and transfer funds to and from an investment account.
Certificate of Deposit (CD) Account
A Certificate of Deposit (CD) is a bank account for long-term savings. A CD’s term, which refers to how long you have to wait before you can withdraw your money for free, is normally between three months and five years. This type of account is good for high interest in your savings. But getting a CD with a high yield mostly depends on the bank and the term.
A no-penalty Certificate of Deposit is also available at some banks. A no-penalty CD is a combination of both a savings account and a certificate of deposit account. Withdrawing money from no-penalty CDs and savings accounts is generally free. However, during the first six days, withdrawals from no-penalty CDs normally attract a fee or penalty. So, you need to be aware of this before opening any type of CD.
Retirement Investment Accounts
It is wise to add an investment account to assist you in reaching your long-term or retirement savings goals. Retirement Investment Accounts come in different forms and sizes, and selecting one requires careful thought. Individual retirement accounts (IRAs), which include standard IRAs, Roth IRAs, and spousal IRAs, are some of the best individual retirement plans.
Non-retirement Investment Accounts
After opening your retirement account, you can try to create a regular (non-retirement) investment account if you still have some cash to put aside. Many advantages come with a normal investment account, including the opportunity to access your funds without penalty and the flexibility to save outside your IRA.
Business owner? Add a Business Account
If you own or manage a business, you will need to add a separate business or corporate checking account to your mix of bank accounts. For financial, accounting, and legal reasons, it really is important to keep your personal and business funds separate. This arrangement will make it easier for you to keep track of both your personal income and expenditure as well as that of your business.
Best business accounts
An additional option to enhance your business cash flow is to create an account with a digital wallet service. This can also help to increase customer satisfaction.
Multi-currency Account for Business Overseas
If you are a freelancer, digital nomad, an expat, or entrepreneur that does business in many countries, or you travel frequently, you may want to add an international account. Such an account supports holding more than one currency at a time. It usually comes with a card that you can use at ATMs in many countries and a mobile app for easy currency conversion, multi-currency transactions, and other features for convenient international online banking.
Note that international or foreign currency transactions in regular bank accounts are subject to a fee. The fee could range between 0.2% and 5% of the transaction amount.
Best international or multi-currency accounts
Over the last few years, cryptocurrency has grown in popularity following advancements in the use of blockchain technology and friendlier attitudes towards digital tokens. Individuals, businesses, and financial institutions are benefiting from utilising and investing in crypto assets. Cryptocurrency provides investors with a safe and secure alternative to traditional financial assets such as equities and bonds.
Since diversifying your investments is the greatest way to reduce market risks, you may want to add a cryptocurrency account (or wallet) to your collection of accounts. You can start by opening an account with a crypto-friendly bank so that you can make cash-to-crypto and crypto-to-cash conversions, trade in cryptocurrencies, pay with cryptocurrency on Amazon and other e-commerce stores, make anonymous payments, and do a lot more.
Best international or multi-currency accounts
Drawbacks to Owning Multiple Bank Accounts
Despite the advantages of having many bank accounts, there are certain reasons why choosing this option might not be good for your financial goals. They include the following:
- More fees to pay: This is obvious. If you have one bank account, you can concentrate on paying only the fees charged by your bank. But when you add more accounts, the fees are likely to increase because, in one way or another, almost all your banks will take a share of your money to continue to serve you. Examples of these charges include monthly maintenance fees, wire transfer fees, card maintenance fees, ATM fees, foreign transaction fees, and several others.
- Additional minimum balances: You may find that by separating your funds into different bank accounts, you end up having more minimum balance criteria to meet to escape monthly penalties.
- More accounts to reconcile: Keeping track of your transactions across more than one account could be confusing, if not downright stressful. However, it is possible to properly manage them.
How to Manage These Bank Accounts
For a start, you can create two to four different bank accounts, depending on your preferences and plans. As to depositing funds in them, we recommend splitting your money before you get it so as to manage your different bank accounts smartly. If your wage, salary, or income comes through direct deposits, if possible, ask your employer or payer to put a certain percentage or amount of your money into any of your multiple accounts where you would want it to be.
For example, you might put 40% of your paycheck into your checking account for bills, 25% into your checking account for other expenses, 20% into your emergency fund savings account, and 15% into your savings account for other goals. You can use any sharing percentage that you think would work best for you or that would help you achieve your financial goals.
You would not be tempted to spend money you do not have if you divide your paycheck before it reaches your bank account. You will also work consistently toward your savings objectives without even realising it.
If your employer is unable to divide your income for you, request that they deposit your whole paycheck into your bill-checking account. The transfers can then be set up by you. With the help of your bank, you may be able to set up recurring transfers to the other accounts every time you receive your income.
You can also use personal budgeting apps to manage all of your incomes and expenses.
How to Stay Organised
Staying organised involves getting some help with managing your multiple accounts. Using online systems and apps as well as doing regular check-ins for every account you have are two ways to get help in this situation.
Use online banking platforms and mobile apps. Digital alternatives allow you to monitor your accounts from your smartphone and keep updated on any changes. Some apps allow you to set reminders, automate payments for recurring expenses, and receive notifications. Having constant access to your accounts can help you stay organised. Therefore, check your financial accounts at regular intervals.
In reply to the question of how many bank accounts you should have, we would recommend four accounts—the first four mentioned in this article. Generally, you should have two separate checking accounts for bills and other expenses, and two separate savings accounts for emergency funds and other savings goals.
Having many bank accounts can assist you in the long term if you are willing to try them and stay organised. Multiple accounts, if thoughtfully combined, can help you to accomplish your financial goals.
Regardless of the number of accounts you have, always pay attention to the fees and minimum balance requirements to avoid incurring extra costs and penalties.
If there is any account you should keep easily accessible, it should be your savings account for emergency funds. Life is full of surprises, and you need to try your best to keep unpleasant surprises within your financial control.
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