Reasons for Multiple Savings Accounts
5 Ways to Organize Your Cash
You probably know that a savings account is an excellent place to keep money safe. But you don’t have to stick to one account—multiple savings accounts can enhance the way you organize your finances and save for specific goals. There’s no limit to how many savings accounts you should have, but it gets hard to keep track of things after a certain point.
Why Use Multiple Savings Accounts?
You might wonder why you should use more than one account, and we’ve got several suggestions below.
- Set it aside: Set up different savings accounts for different goals. Moving money out of your primary checking or savings account improves your chances of success:
- Automate it: Set up automatic monthly transfers from your primary account to other savings accounts. That way, you never forget to save for your goals. Plus, you get earmarked money out of sight quickly, so you’re not tempted to spend it. You can move money within the same bank instantly, or set up bank-to-bank transfers (which should be free).
- Protect yourself from yourself: After you move money into a savings account dedicated to a goal, you may experience some “pain” if you raid that account for luxury items or unnecessary expenses. This behavioral trick helps you stay on track.
- Monitor progress: With multiple savings accounts, you can watch your progress toward various goals.
- Build momentum: Success is motivating. If you see an account growing, you have positive reinforcement to continue your saving behavior. Working toward your goals is more enjoyable, and you’re more likely to keep it up.
- Hold yourself accountable: Your account balance doesn’t lie. If you decide to save money for something, but you don’t follow through, it’s critical to understand what’s happening. It doesn’t mean you’re a bad person, but you need to explore what’s stopping you from making progress.
- Smooth your spending: A separate savings account can help you budget for significant annual expenses. For example, if you pay property taxes and homeowners insurance annually instead of using an escrow account, you might want to add to a savings account every month to build up the funds you need. By chipping away at annual costs, you avoid spending shocks throughout the year.
- Yours, mine, and ours: If you’ve merged your finances with a spouse or partner—but you both want some autonomy—it may make sense to open several savings accounts. Each of you might keep your own account for things you want to spend on guilt-free. Another account might be a shared account for joint goals and expenses. Discuss how you want to handle finances, and design a system that works for everybody.
- Insure your savings: If you’re fortunate enough to have significant cash savings, you might open savings accounts at different banks to keep your account balances below FDIC insurance limits. The $250,000 limit is typically per account per institution, so keeping excess amounts at a different institution helps you stay safe (just make sure the bank is under separate coverage). That said, it may be possible to have more than $250,000 in one bank—ask a bank staff member for details.
How to Use Multiple Savings Accounts
Now that you understand the benefits of having more than one account, develop a strategy and take action.
Online banks offer the easiest approach to using more than one savings account. For example, Ally Bank allows you to open an unlimited number of savings accounts, and other banks also offer subaccounts. Benefits of online banks include:
- No monthly fees, in most cases, which can wipe out any interest you earn or cost you money
- No account minimums, allowing you to start small
- Competitive interest rates, helping you grow your savings
Automate as much as possible: Again, electronic transfers ensure that you actually implement your strategy, and they help you avoid temptation. Set up direct deposit of your pay, and ask your employer if it’s possible to split your pay among several different accounts. If not, link your primary checking account to your various savings accounts and schedule automatic transfers for each pay period.
Open an account for each category that you want to save for, and beware of going overboard. How many savings accounts should you have? Several broad categories might be easier to manage than numerous accounts. For example, it makes sense to dedicate one account to emergency savings so that you don’t accidentally spend your rainy day fund. In addition, you might open a handful of accounts for specific goals, such as:
- Education expenses
- Down payment on a house, and other home-purchase costs
- Weddings or other events
Refine your strategy as needed. The nice thing about having several accounts is that you can prioritize your goals. If you don’t have enough money to fund a high-priority goal, you can potentially “borrow” from lower-priority accounts. Stealing from other important goals isn’t ideal, but reality occasionally forces you to make tough choices—and it’s nice to have options in those situations.