The Benefits of Multiple Bank Accounts
Most individuals sign up for their first checking account as a young adult or as a teenager with the help of a guardian. If you’re reading this now, odds are you have one of your own.
But did you know you may benefit from having another bank account? Or more?
People traditionally have two types of accounts—checking and savings. Married couples or domestic partners likely share a joint checking account as well. So why would anyone need to add more?
It naturally comes down to your personal financial situation.
As your wealth grows the need for additional bank accounts increases, but there are compelling reasons to have multiple accounts even as a young professional or a growing family. How will you know if you can benefit from additional bank accounts? Let’s first frame our thinking around banking. Think of a bank account merely as a tool. It’s a way for you to do different things with your money.
You use a screwdriver to tighten a screw, a sponge to wash a dish.
A checking account to pay a bill, and a savings account to save for a rainy day.
Different financial goals may require different financial accounts. Ideally, there is a connection between your goals and your lifestyle.
Another way to view your money is in present and future terms.
Your primary checking account is likely where your living expenses and everyday purchases come from. A savings account is where you save for the future.
Adding a checking account can help you manage your present funds and an additional savings account (or investment account which we’ll get into later) can help you manage your future funds.
Why you may need additional checking accounts
Your primary checking is where your paycheck or other funds are deposited, which might be a joint account for married couples. Funds are accessed with debit card use and ATM cash withdrawals or through writing checks. This is the norm, but here’s several reasons why you may need additional accounts.
Budgeting
Can’t keep track of your money? Perhaps you need to separate your funds into one or more accounts with very specific purposes.
Account #1 can be used as a primary account to receive all of your income from work and side hustles. Once income is received, this account can be used as a transactional account that can transfer cash to other Account #2, #3, and #4 for different purposes. Allocating cash directly to account #2, #3, #4 ensures that you can always cover your predictable expenses.
Account #2 can be used to pay those important bills—mortgage or rent, utilities, cell phone, gas.
Account #3 can be used for fun purchases—entertainment, eating out, shopping.
Account #4 can be used for any number of expenses or savings, including vacations and emergencies.
The ways you can configure your accounts are endless. The important issue is to come up with an allocation that matches your cash inflow and expenses. Name your accounts so you know which one belongs to what account. Just make sure you’re not accruing unnecessary fees at the expense of having too many budgeting accounts.
Location
While the need to physically visit a financial institution has significantly decreased with online and mobile banking, some people prefer going to a branch. If you’re one of these people, consider the locations of your bank. Can you easily go deposit a check or run to the ATM if you need cash?
Conversely, if you travel often, you should consider a national bank that has more locations or one with international services if you navigate the globe. Plus, there online-only banks popping up all the time.
Different Benefits
Outside of more practical reasons you may want accounts with different banks, you can take advantage of a wider variety perks from various financial institutions.
Benefits might include zero ATM fees, foreign transaction waivers or free accounts for children.
Different Types of Checking Accounts
We’ve been talking mostly about basic checking accounts, but did you know there are other types?
From those made specifically for children, college students and seniors, there is an appropriate account type for everyone. Furthermore, if you’re a small business owner, you should always keep your personal and business finances in separate accounts.
Business bank accounts often have specific advantages such as merchant services or use of multiple debit cards for employees.
Why you may need multiple savings accounts
By design a savings account limits the number of withdrawals you can make but welcomes infinite deposits.
Why? Because it was created to help consumers save their money.
There are no debit cards connected and you typically don’t write checks off the account. Here’s why you should consider having one or more types of savings accounts.
Higher Interest Rates
The ability to earn more money off your money is easily the most advantageous reason for opening additional savings accounts. Shop around at multiple financial institutions to find the best annual percentage rate.
These days, online banks tend to offer higher rates than their brick-and-motor counterparts.
You can also take advantage of the higher rates provided by money market accounts, which do allow debit card transactions and check writing, but require a higher minimum balance than savings accounts do.
Save For Retirement
Savings and money market accounts do not offer a high enough rate of return to act as sufficient vehicles for retirement, but most banks do offer retirement accounts to their customers, though many people opt to open investment accounts at brokerages or wealth management firms.
Wherever you decide to open your IRA or Roth IRA, the importance of starting your retirement saving early is exceptionally important, but that topic is for another day.
Save For Healthcare
One of the lesser-known types of bank accounts is the health-savings account, or HSA.
Funds can only be used for qualified medical expenses like deductibles and copayments, and HSAs don’t allow cash back or ATM withdrawals.
Like a 401(k) or traditional IRA, you deposit money into the account on a pre-tax basis, which helps lower overall healthcare costs. And just like retirement accounts, there are yearly limits to how much you can contribute.
In Conclusion
As you can see there are number of great reasons to consider opening additional bank accounts for yourself and/or your family.
If you’re ready, first take a good look at your finances.
You’ll need to be organized to determine what types and how many additional accounts you’ll benefit from. Then, ask yourself what is important to you or your family. Convenience? Higher interest rates? Weekend hours? This should further help you prepare.
Remember, having multiple bank accounts is futile if you’re accruing extra fees or are overwhelmed as a result. There’s no need to be incurring overdraft fees or monthly maintenance fees if you don’t have to.
Here are solid tips to get organized today!
