How Many Savings Accounts Should I Have?
Savings accounts offer a way to put your money to work with virtually no risk. They’re also often free to open, meaning there’s little downside to keeping multiple savings bank accounts in your name.
So, you may be wondering, how many savings accounts should I have? Don’t worry; we did all the research for you! In this guide, we’ll cover the different types of savings accounts; we’ll explain how many you should have and why they’re worth it. Let’s get started!
The Importance of Saving
Before we dive into the question of how many bank accounts to open, let’s talk a little about saving. If you’re on the fence about putting money away for the future, you should know that this is one of the most important financial moves you can make.
By saving money, you’re ensuring that you will have funds available whenever you need them in the future. Lose your job? Break your leg and have to pay medical bills? Whatever the unexpected financial crisis, if you have money in your bank account, you’ll be able to buy yourself some time and navigate your way through it.
Saving money is also a smart financial move because it helps you make progress towards expensive life goals. For example, if you want to buy a home someday, pay for your child’s education, or retire without giving up your current lifestyle, you’ll need to have a stash of money available. Saving is how you build that stash over time.
Types of Savings Accounts
While any savings account is better than none, not all savings accounts are created equal.
Major banks offer what are known as ‘standard’ savings accounts. They typically offer zero or low fees, but the interest rates are some of the lowest on the market. The advantage of a regular savings account is that major banks have a lot of branches and ATMs, so it’s easy to access your money if you need it. Many big banks also offer online banking and mobile deposits, making it easier to manage money in your savings account.
High-yield or online savings accounts are just like standard savings accounts, except they offer higher interest rates. Typically, online banks offer these accounts with lower overhead costs and a higher annual percentage yield. The downside is that you might not have access to bank branches or ATMs.
Look to your local credit union if you want something in between standard and a high yield savings account. Many credit unions offer better interest rates than major banks, but they also offer local branches and ATMs, unlike many online banks.
Why Have Multiple Savings Accounts?
Most traditional banks, credit unions, and online banks will allow you to open multiple savings accounts in your name as you want. However, there are good reasons why you might want separate savings accounts.
First, you can use each account to save for different savings goals. For example, one savings account might serve as your vacation or emergency fund, another might be where you store money to pay for your child’s education, and a third might be savings to cover an upcoming mortgage or rent payments.
Depending on what tools your bank offers, you might even be able to automate transfers from your checking account to each savings account monthly. This ensures that you’re putting money towards each of your goals every month and that you have a plan for each goal-based account and are staying on track.
Another reason to split up your savings into multiple accounts is that it helps you to earmark the funds for a specific purpose. For example, if your vacation funds and your rainy day funds are mixed together, it can be a little too easy to dip into your emergency fund savings account to extend your next holiday. But if those funds are in a separate savings account, you know exactly what they’re intended for and won’t be tempted to mingle them together.
How Many Savings Accounts Should I Have?
The number of savings accounts you should have depends on several different factors. Ideally, you should have one for every distinct financial goal. Depending on how complex your finances are, that might include dedicated accounts for:
- A rainy day fund
- A down payment fund for a home purchase
- A new car fund
- A vacation fund
- A healthcare expenses fund
- An education fund for your kids
- A tax fund (if you’re likely to end up owing taxes at the end of the year)
If you have different savings accounts at the same bank as your checking account, moving money around should be relatively convenient. However, if you have to open multiple savings accounts, ease of access could limit how many accounts you want to keep.
Another thing to consider is whether the financial institution has minimum balance requirements for its savings accounts to avoid paying monthly fees or getting the maximum interest rate. The more accounts your money is spread across, the harder it might be to meet the minimum deposit in all of your separate accounts.
You should also keep an eye on the limit for FDIC insurance, which protects you in case your bank goes out of business. The $250,000 FDIC insurance limit applies to the sum total of all your savings accounts at a single bank, not to each individual account. So, if you have more than $250,000 in savings, you may want to consider migrating some of your accounts to another bank.
Alternatives to Savings Accounts
While savings accounts can be a great way to earn interest on your money, they aren’t the only safe option for growing your money.
Many banks offer money market accounts, which combine elements of checking and savings accounts. They earn interest, but you can also write checks or make ATM withdrawals from your account.
The downside is that many money market accounts come with monthly fees, and interest rates are often tiered based on the amount of money in your account. So, you may miss out on interest if you spread your savings across multiple money market accounts.
You may also be able to earn a better interest rate with a CD (certificate of deposit) than you would with multiple bank accounts. This is because when you put your money in a CD, you cannot withdraw it without a penalty for the length of the CD. But CDs are insured by the FDIC just like savings accounts, so they’re virtually zero-risk. Therefore, a certificate of deposit can be a good option if you don’t need access to your savings for several months or several years.
Finally, you can consider riskier investments like stocks. The stock market is not a sure thing like savings accounts or CDs – you can lose money – but it offers a much higher rate of return. Exchange-traded funds (ETFs) that track the S&P 500 or the entire US stock market can be an option for growing your money with relatively little risk. If stock trading and investing sound like your thing, there are quite a few investment apps out there that can help you get started, like Personal Capital, Worthy Bonds, and Acorns.
Conclusion: Opening Multiple Savings Accounts
Saving for the future is critical to your personal finance and long-term financial independence. Most banks will let you open multiple bank accounts, and you can take advantage of this to save your money in segregated accounts for all your different financial goals. If you want a greater return on your savings, consider putting your money in an online savings account, money market accounts, CDs, or even stocks.