Do I Need Several Savings Accounts?
You are surely aware of the importance of saving money. You’re undoubtedly also aware that high-yield savings accounts will help you reach your savings objectives quicker by providing a higher interest rate than most local banks; so, creating a high-yield savings account is a smart option.
But, how many savings accounts should you have? If not, this article may assist you in determining the appropriate number of accounts to create and manage.
Should You Combine Your Savings Accounts?
A savings account is a location where you can keep your money. However, restricting oneself to a single account is not the greatest strategy.
Having numerous savings accounts allows you to better manage your money and keep on top of your objectives. There are no restrictions on how many savings accounts you may create with a bank.
The Advantages of Having Multiple Savings Accounts
Having numerous savings accounts might provide certain benefits. If you’re on the fence about opening numerous savings accounts, here are some compelling reasons to do so.
Different Financial Organizations Provide Various Benefits
You may love the excellent customer service at your local credit union and maintain an account there, but you prefer to keep your emergency cash with an online bank where you are less inclined to make withdrawals.
Another appealing feature is that some banks provide cash incentives for opening new accounts. But what if you have various banks for your savings accounts?
A budgeting tool that enables you to connect all of your accounts is one option. Now there are many apps like moneylion that will help you cope with the task of controlling your budget and savings.
You Could Benefit from Higher Interest Rates
The interest rate counts when depositing money to a savings account since it impacts how rapidly your money may grow. When it comes to interest rates and the accompanying annual percentage yield (APY), not all savings accounts are created equal.
Spreading your money across many savings accounts from different banks may allow you to take advantage of greater interest rates.
For example, your local bank may provide a lower APY on a conventional savings account than an online bank does on a high-yield savings account.
You May Put Money Away For Several Financial Purposes
You can be saving for a variety of reasons. Most people recommend saving three to six months of living costs in an emergency fund.
However, you may want to keep your emergency fund distinct from your other savings, which is why having numerous accounts may be a good idea.
As Statista shows, federal debt held by the public continues to grow from year to year and is now at around 80%, which, with further growth, can lead to a significant deterioration in the life of the population. It is for such cases that you create this savings account.
Assume that, in addition to emergency funds, you want to save for a house down payment and a large trip. In such a situation, it could be a good idea to create three savings accounts.
In this manner, you can keep track of your progress and avoid leaving yourself with insufficient funds for emergencies.
It Simplifies Budgeting
Keeping all of your funds in the same account might lead to overspending. If you’ve already withdrawn funds from the account, nothing will prevent you from doing so again.
Consumers who have several savings accounts can tell the difference between spending and saving.
A part of each paycheck may be deposited into savings accounts intended for investing, tuition, a down payment, and other necessities. The leftover funds might then be used for other purposes.
The Drawbacks of Having Multiple Savings Accounts
It May Result In Fees
Bank fees might reduce the amount of interest you receive on your savings. A minimum balance charge is one to be aware of when it comes to savings accounts.
If your account falls below a specific threshold, banks may levy a minimum balance fee. If you fail to fulfill the minimum balance criteria for each of your savings accounts, you may find yourself paying a slew of fees each month.
Also, keep excess withdrawal costs in mind. If you often take money from your savings, your bank may charge you one or more excess withdrawal fees, depleting your cash reserves.
How Many Bank Accounts Do You Need?
You should have a sufficient number of savings accounts to arrange your funds. You should have a savings account set up as an emergency reserve for unforeseen needs in life.
You might also establish a separate account for each objective, such as saving for a family vacation or a downpayment on a house.
You should only have one checking account for monthly spending and purchases. We highly advise you to save enough money in the account to cover your monthly expenditures.
Checking accounts do not pay much interest, but cash withdrawals, bank transfers, and POS transactions are frequently free.
Set Up a Savings Account For Your Emergency Fund
An emergency reserve is a money that is only used when something unexpected occurs. Perhaps you lose your job, your vehicle breaks down, or you have a large healthcare bill.
Because you only use this money in an emergency, it’s best to maintain it in a different account from the ones you use for bills or other savings purposes.
Most experts advocate saving three to six months’ worth of living costs in your emergency fund. A one-income family should have six months of costs and a two-income household should have three months of spending.
Checking Account For Personal Use
This is for all of your “wishes.” Each paycheck, deposit a certain amount of money into the account to cover whatever gives you delight. Stop spending until your next deposit if the account hits zero.
Account for Emergency Savings
Life is full of surprises, but having an emergency fund makes us better prepared. Your employment might be laid off or dismissed. This kind of incident would be terrible for your money, and finding a new employee may take months.
Furthermore, you or a loved one may need medical treatment in the future, which might result in large medical expenditures.
Setting aside money for an emergency fund each month prepares you for the unexpected.
Opening numerous bank accounts is a major benefit since it eventually gives you more flexibility by widening the financial alternatives available to you.
As long as you can handle the accounts, there is no reason not to create as many accounts as you need.
We suggest opening at least two accounts, one for checking and the other for saving. Divide your monthly income or compensation in half.
Put the amount you normally spend each month into your checking account and the extra amounts into your savings account.