How Many Bank Accounts Should I Have?

Many people might wonder how many bank accounts should I have? Well, like many other questions in personal finances, it depends. Different types of bank accounts serve different purposes. Therefore, the types of accounts you have and how many you have should fit your distinct set of needs and goals.

Why Have Multiple Bank Accounts?

As mentioned above, having multiple accounts is necessary when you have different financial goals. Checking accounts are suitable for your day-to-day or monthly expenses. Pay bills and other fixed expenses typically come from a checking account. Savings accounts are more geared toward, well, saving. They will have a higher interest rate than your average checking account. You can then dive deeper into each type of account for even more specific needs. For example, if you have your own business, you’ll need different accounts to separate those expenses from your personal ones. Essentially, the reason for having multiple accounts is to make sure all your goals are being met.

Types of Bank Accounts

Most bank accounts are created for specific purposes. Therefore, before knowing how many accounts you need, it’s essential to know the uses for each type of account.

Checking Account

Checking accounts are best for paying bills. Typically, a good strategy is to keep enough in your checking account to cover a month or two’s worth of expenses. However, checking accounts usually have very low interest rates, so keeping extra money in them is not the best use for your money.

Savings Accounts

Savings Accounts have been around for hundreds of years now. Their primary purpose was and still is to provide an account to save your money. Putting it aside to grow the money and use it for an expense that is not recurring. Saving accounts will typically have much better interest rates than checking accounts. In addition, banks will sometimes offer perks for opening them or having higher balances. Your typical savings account has become far less helpful with the relatively recent popularity of high-yield savings accounts. However, it is still a good account to have for younger savers.

High-Yield Savings Account

High-Yield savings accounts provide savers with higher interest rates than your standard bank savings accounts. Many banks that offer these accounts are “online banks,” meaning they don’t have any physical locations. Not having the expenses and overhead that come with maintaining builders, paying tellers, etc., can give savers interest rates twenty to twenty-five times higher than a typical savings account. These savings accounts will also typically have perks for those with higher balances but will be lost if your balance falls below their threshold.

Money Market Accounts

Money market accounts are unique in that they are a hybrid of both checking and savings accounts, but with some restrictions. Like a checking account, money market accounts come with check-writing privileges and debit cards to pay for expenses. However, they will also have higher interest rates like savings accounts, although still not as high as a typical high-yield savings account. 

Although many people will enjoy having one less account to keep track of, money market accounts are typically restricted in how many checks and\or electronic transfers can be done each month. Suppose you have multiple bills or expenses linked to an MMA. In that case, you’ll likely hit this limit quickly and will need other checking accounts anyway.

Business Accounts

If you own your own business, you are legally required to keep separate bank accounts to keep personal and business expenses and income separate. Business accounts serve the same purpose as personal accounts but strictly for your business. They can also have different perks and fees associated with them. 

Business International or Foreign Currency Account

If your business involves international clients or travel, an international or foreign currency account might be for you. These accounts are often helpful for business owners who need to travel internationally, often for business or pleasure. 

The reason for this is that your typically business bank accounts charge a fee for carrying out international or foreign currency transactions, which can add up quickly for any business. On the other hand, a specialized international account charges 0% for foreign transactions, potentially saving you thousands of dollars in transaction fees. 

Having Multiple Bank Accounts of the Same Kind

Not only will some people have multiple accounts of different kinds, but many people choose to have multiple accounts of the same kind. This could be for several reasons:

  1. Separate different kinds of expenses
  2. Have multiple savings accounts for different goals
  3. Separating emergency funds from regular savings funds
  4. Bank accounts are FDIC insured to a certain extent, if you exceed that amount, you might want to open another account to make sure all your money is insured
  5. When using smaller banks, many people will use different banks in case one goes under
  6. Different banks will offer perks when opening accounts and keeping them open; many people will open multiple accounts to take advantage of all available perks

Soooo…How Many Bank Accounts Should I Have Then?

After all this explanation, for most people, all that is really needed are two accounts, any form of checking and any form of savings account. That is the most simplistic answer. But, as always, everyone’s situation is different, and we are all wired a bit differently. If you like keeping things simple, then stick with just the two. If you can keep track of different accounts more easily than others, you can certainly open up more accounts as long as they fit your goals and needs. 

Another typical strategy is to have four bank accounts, two checking accounts, and two savings accounts. The first checking account is for fixed\expects monthly expenses like rent, groceries, car payments, etc. The second checking account is for non-recurring other expenditures such as entertainment, car repairs, etc. With this method, you have two advantages. For one, you know how much will need to be in the “fixed expense” account month to month. Secondly, you’ll better be able to keep track of how much you spend on non-essential purchases from the second account. 

For the savings accounts, one is typically used as an emergency fund, aka, four to six months worth of expenses you keep aside in case of job or income loss. The second saving account is used for any other savings goals you may have. The advantage here is that you’ll be less tempted and able to dip into emergency savings for larger purchases.

Pros and Cons of Having Multiple Accounts

Finding the right balance of accounts is up to you and how you are wired, but there are many pros and cons to keep in mind. 

Pros

  • Having a clear and distinct financial organization more easily
  • Opening accounts will typically get you the best perks banks offer
  • Keep all your money FDIC Insured
  • Keep Personal and Business transactions separate
  • Using several banks in case smaller or online banks go under will diversify your money and incur less loss
  • Using the same bank for all accounts will make it easier to track all of them
  • You can sign up for apps or sites to easily keep track of all accounts

Cons

  • Multiple accounts can be more challenging to keep track of all transactions, especially if they are with different banks
  • Easier to overdraft an account\fall below perk thresholds if you are using too many account\banks
  • Monthly fees can add up to significant amounts when using multiple accounts and banks
  • Many perks are for opening an account only and have no advantage after that

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