How Many Savings Accounts Should You Have?

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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