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How Many Savings Accounts Should You Have?

Published October 24, 2019

4 minute read

By Jim Greene

Most people only have one savings account with their bank. They give little thought to how they could benefit by opening another. Yet, personal finance professionals stress that multiple savings accounts offer powerful strategic advantages to people trying to reach savings goals or manage their money more effectively. Millions of people struggle to stay on top of their finances. You don’t have to be one of them. Maintaining multiple bank accounts might be the tool to help you get there.

Multiple Accounts Make Budgeting (and Saving) Easier

One big advantage of having multiple bank accounts is that the strategy makes it much easier to stick to budgets and save money. Creating a monthly budget is a critical aspect of money management. One easy way to impose spending limits is to set up two bank accounts. One account can contain funds for your monthly budget, and the other can be strictly for saving. Use only the spending account for expenses, and don’t touch the money in the savings account.

You can set up both accounts at the same bank, or use separate financial institutions. Both options have their advantages and drawbacks. Keeping your accounts at the same bank makes it convenient to transfer funds from one account to the other. You can have your paycheck deposited directly into your savings account, then move your budget money into your spending account. If you have an emergency, both accounts are linked so it’s easy to transfer more funds in.

However, this ease may undermine your budgeting efforts. If money beyond your budget limit is accessible at the click of a mouse (or tap of a smartphone), you might find yourself overspending. Manually depositing budget funds into an account at a separate bank will help you stick to your savings goals, so it’s an option worth considering if staying within your budget is proving tricky.

Accelerate Your Earnings with Specialized Savings Accounts

Some specialized savings accounts pay healthy interest rates. That delivers a risk-free way to earn meaningful amounts of money on funds you’re parking in the bank anyway. High-interest savings accounts and money market accounts are two popular options. These savings vehicles deliver the best rates banks offer, though they usually come with some limitations.

First, you may have to meet minimum deposit requirements or keep a certain amount of money in the account to earn the best interest rate. Second, many of these accounts limit your ability to make transactions or draw money out. Both of these features make them ideal for saving but not for spending. Thus, you may want to stash some cash in a regular account for everyday purchases. Then you can commit your nest egg to a separate savings account that delivers high interest.

Special Considerations for Couples

Married couples often find it works best to separate their finances into three categories: “your money,” “my money,” and “our money.” The most common approach is to pool funds in agreed-upon proportions in the “our money” account, and use it to pay for housing, food, utilities, and other shared expenses. When you’re buying something for yourself, use the “my money” account to pay for it. Your partner can do the same with his or her separate account.

Money is one of the leading causes of bickering and arguments among couples. Separating funds into these three distinct piles helps prevent that. It will always be clear whose money is whose and which account should be used to pay for which purchases. This strategy also helps manage not only the household finances, but it can also keep the peace. You can even take it a step further and keep separate savings accounts too, in addition to a joint savings account.

The Importance of an Emergency Fund

Emergency funds, also known as contingency funds or rainy day funds, can mean the difference between financial security and going broke. As a general rule of thumb, you should try to put away about 5% of your take-home pay in an emergency fund. Keep it on hand to cover the unexpected expenses that inevitably pop up from time-to-time. If you’re one of the millions of people who essentially live from paycheck to paycheck, an emergency fund delivers critical insurance. It guarantees you will have some spare money available in a pinch.

It’s a good idea to keep your emergency stash in a separate account. The lines between your rainy day fund and your regular fund can easily blur if you deposit them in the same place. Keeping the funds distinct helps you keep your rainy day fund “out of sight and out of mind” until you have a legitimate need for it.

The Final Verdict

There’s no universal answer to the question of how many savings accounts you should have. Everyone’s financial situation is different, so this is one area where blanket advice doesn’t hold water. However, prevailing wisdom suggests it’s a good idea to maintain at least two bank accounts. Use one of them for regular spending and the other for funds you want to save.

Online tools are fantastic for finding the market’s most competitive interest rates. Simply perform a location-specific search for opportunities available to consumers in your area. Then compare the various offers. Remember to look past the interest rate to other factors, such as minimum deposit requirements, daily balance requirements, and transaction limits. Some savings accounts levy fees and charges to customers who step outside the lines, which can nullify your interest earnings or even cost you money. You’ll also want to stick to financial institutions endorsed by the Federal Deposit Insurance Corporation (FDIC), or the local equivalent where you live.

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Jim Greene

Contributor

Jim Greene is a freelance writer based in the Toronto, Canada area. He has been writing professionally since 2001 and has an extensive professional background in consumer research, personal finance and economics.

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