The age old saying, “don’t put all your eggs in one basket,” warns us against putting all our resources into a single, risky venture. This well-known proverb can easily be applied to savings accounts – a risk-averse way to set aside money for a rainy day. to achieve.
Banks use deposit accounts to fund their lending. In exchange for the right to invest your money and make a profit, a bank or credit union will pay you interest on the funds it collects. Your money grows and is also safely stored with a bank or credit union insured with the federal government. Savings accounts are insured against loss by the Federal Deposit Insurance Corporation, if opened through a bank, or the National Credit Union Administration for accounts in a credit union for up to $250,000 per person.
But if you’re like half of Americans surveyed in a recent GoBankingRates survey who said they’re loyal to just one bank and keep their reserves in one place, you’re overlooking seven practical reasons for wanting more than have one savings account.
1. Automate Savings Growth
The out-of-sight-out-of-mind principle comes in handy when savings accounts are not connected as overdraft protection or with simple transfer to your main bank account. You are less likely to consider daily spending or impulse purchase accounts if you are not constantly reminded that the savings balance exists. Combine this with an automatic deposit or transfer, and your balance can grow unscathed. Individual savings accounts can use the set-it-and-forget-it approach.
2. Reduce the chance of overspending
Individual banking institutions can provide a useful hedge against overspending. While the accounts can be linked to facilitate transfers through the Automated Clearing House Network, it generally takes up to three business days to complete such transfers. The extra effort required to transfer money and the time it takes to complete a transaction creates a cooling-off period. Impulse purchases, or unnecessarily extravagant purchases, can be filtered out with less direct access to your savings account.
3. Find the best returns
In this age of rising interest rates, buying savings accounts with the best returns is a must if you want to grow your savings. CNET regularly updates a list of thewith many offering online applications that are available nationwide. Since most banks or credit unions offer top-notch security, access, and a variety of services, finding the account with the highest annual percentage rate of return, or APY, will ensure your money keeps up with the .
4. Track your progress
When working towards achieving financial goals, using separate accounts to track progress is a solid strategy. Some people use separate accounts to save for important things like saving for school, making down payments on a car or house, or taking a life-changing vacation. Separating savings accounts shows how close you are to a particular goal. The visual reminder can boost momentum to help you stay focused on your goal.
5. Keep Your Money Insured
The federal government began supporting banks as part of the New Deal under President Franklin Roosevelt as a policy to deal with bank failures during the Great Depression of the 1930s. As previously mentioned, deposit accounts are covered with banks and credit unions supported by federally insured organizations such as the FDIC and NCUA with up to $250,000 per person, which covers all accounts at each banking institution. When the balance of the deposit account approaches that magic number, opening a new savings account with a separate bank is not only wise, but also essential to ensure that your money is covered against bank losses or bankruptcies. Although the banking sector is fairly stable, bank failures have happened in recent years.
6. Take advantage of bonuses
are a useful incentive to open a new savings account. These bonuses can range from a few hundred dollars to $500. The bonuses come with conditions that can range from the minimum required for direct deposits to maintaining a monthly balance over several months.
7. Manage Minor Accounts
Setting up a savings account for underage children is a great way to instill healthy financial habits at an early age and introduce them to practical financial training. A separate account can help them set savings goals and develop financial literacy that will help them into adulthood.
Steps to take when setting up multiple savings accounts
- Identify why you need multiple savings accounts. This determines the number of accounts you need and how you want the accounts to communicate with each other. For example, if you’re saving for a new car because you want to pay cash, but you’re also saving for an international vacation, separate accounts allow you to track your savings progress for both plans.
- Inquire about APYs and specials your bank offers. Contact a bank representative and inquire about opening additional savings accounts with higher APYs and if any special offers or bonuses are available when you open another account.
- Research the best high-yield savings accounts using online resources such as CNET’s guide to the . You can compare different features in addition to APY, such as monthly fees, minimum balance requirements, and access to ATMs.
- Decide how you want to access your money. Do you need a brick-and-mortar bank with customer service to access your money in person, or do you prefer an online bank where you can manage your money from the comfort of your home? If the bank has physical branches, would easy access to services tempt you to tap into your account? You also need to decide how you want to link your bank accounts. The ability to deposit at regular, automatic intervals is key to building a healthy savings habit.
- Schedule time to check your bills regularly. Add a calendar reminder at least once a month to view your savings goals and multiple account balances.
When should you avoid opening multiple accounts?
Having multiple accounts can be a great strategy for building and protecting your savings, but there are situations where opening an additional savings account is not advisable.
- The new account will charge a service fee.
- You cannot deposit enough to waive monthly service fees.
- You don’t want to pay tax on the bonus deposited into your new account.
- You cannot meet the requirements that allow opening a new account, such as a minimum monthly amount for direct deposit.
Frequently Asked Questions
How many savings accounts should I have?
Of course, that depends on your personal financial goals. There is not one correct answer. Matching the number of accounts to large savings goals is one approach. If you find that adding or removing accounts will simplify your life and make it easier to track your progress, adjust accordingly.
In addition, ensuring that your balances with one bank do not exceed the federal insurance limits set by the FDIC or NCUA can help you determine the number of savings accounts that make sense for you.
How many savings accounts can I have?
While some banks limit the number of accounts you can open internally, there is no limit to the number of savings accounts a person can have. Opening a savings account with multiple banks or credit unions removes any limits from one bank. In addition, it will not affect your credit score for having multiple accounts.
Do I have to spread my savings accounts across different banks?
- Your account balance at a bank will exceed $250,000.
- You will find a better APY offer than your current bank with no additional fees that will reduce your overall return.
- You want to use strategies that track savings goals with individual accounts and one bank limits the number of accounts per person.
it comes down to
Smart savers use the strategy of opening multiple savings accounts to help them focus and achieve their financial goals. Using multiple savings accounts with different banks and/or credit unions provides a structure that can help you avoid impulse buying and overspending while putting your savings process on autopilot.