Savings accounts are one of the best ways for people to set aside their extra cash. A good savings account keeps your money safe and pays interest, which can help your balance grow over time.
Many people assume they only need to have one savings account to meet their needs, but that isn’t always the case. You can open multiple savings accounts at the same bank or at several different banks. There are many reasons having multiple accounts can be useful, and it doesn’t impact your credit, so there’s little reason not to open extra savings accounts if you find it helpful to do so.
“Having multiple accounts can be a way to keep yourself on task with the specific goals you’re saving for, without the risk of funds getting commingled,” says Greg McBride, CFA, Bankrate chief financial analyst.
Here are five reasons it might make sense to have multiple savings accounts.
1. Track your progress
It’s easy to keep track of your bank accounts if you only have one savings account, but it can be difficult to keep track of your various savings goals. For example, you might want separate savings accounts for:
- buying a new car
- going on a vacation
- and having some cash set aside for an emergency.
If your emergency fund and your travel fund live in the same account, it can be tempting to raid your emergency savings in exchange for a few extra days at the beach. A single savings account can make it harder to see how much you’ve set aside for each individual goal; targeted savings accounts can put those goals in focus.
If you open three separate accounts – one for each goal – you can easily track your progress toward a goal by looking at each account’s balance, having clear visibility into how much you saved to date per goal.
Targeted savings goals spur good behaviors because they give people reasons to monitor their spending patterns to meet their goals. Setting up separate accounts for each goal can create boundaries, too. “It’s a big red stop sign that says: Do not touch unless it’s for this specific purpose,” says Ryan Frailich, CFP, CSLP, and founder of Deliberate Finances.
Frailich recommends assigning a nickname to each account you open. “If you set up a gift fund for your kids and grandkids, and it says ‘Christmas gifts’ on it, you are a lot less likely to tap that money than you would be if it just said ‘savings account,'” he says.
2. Automate your saving habits
Having multiple savings accounts can help you avoid building up a single large balance, which can make it tempting to misspend your savings. But you’ll likely want to set up automatic transfers to keep each savings account growing.
One of the easiest ways you can make saving money automatic is to set up regular transfers from your checking account to your savings accounts. You can tell your bank to transfer funds weekly, monthly, every other Tuesday or on whatever schedule works for you. You can also automate transfers into a separate savings account by using an app like Digit or Dobot.
3. Reduce the chance of misspending
If you have one savings account with a lump of money sitting in it, it’s easy to feel the temptation to spend it. Having all the money in one place also makes it easier to spend because you can access the funds with a single bank transfer.
If you open multiple savings accounts, each account’s balance will be lower, which makes it harder to feel like you have extra money you can afford to spend. It also adds barriers to spending your money – especially if you have accounts at different banks. Before you can use the money, you may need to make transfers from each savings account to your checking account and possibly wait a few days for those transfers to complete.
Adding the additional steps makes it easier to avoid the desire to spend your savings, which can help you stay on track toward meeting your goals. Being able to monitor each account’s balance and activity also provides a clearer measure of progress on each goal.
4. Take advantage of available bonuses
One common strategy that banks use to draw in new customers is to offer bonuses to people who open new accounts. Usually, to earn a bonus from a savings account, you need to open an account and maintain a certain balance for a period of time. These bonuses can be worth hundreds of dollars, so they’re worth looking for if you have enough money to set aside.
Opening savings accounts at multiple banks gives you the opportunity to earn more than one of these bonuses. You can use the money you earn to accelerate your progress toward your savings goals.
5. Keep your money insured
One of the things that makes a savings account one of the best places to store extra cash is insurance from the Federal Deposit Insurance Corporation (FDIC). The FDIC offers up to $250,000 in insurance, per depositor, per account type, at covered banks. If the amount of money you’ve deposited exceeds that amount, any money over and above the $250,000 limit could be at risk if your bank fails.
If you’re fortunate enough to have more than $250,000 to put in your bank accounts, splitting your balance between savings accounts at different banks keeps your money safe.
For instance, if you have $300,000 in a savings account at one bank, $50,000 of your balance isn’t protected. If you instead put $150,000 into savings accounts at two different banks, your full balance will be insured.
How to manage multiple savings accounts
Anytime you add another account to your financial life, your finances get a bit more confusing. Make sure to keep track of all of your different bank accounts, including how much is where, what it’s earning and whether you’re paying fees.
One way to make things easier is to focus on fee-free accounts, which saves you the stress of having to remember each account’s monthly fees or minimum balance requirements.
You can also try using an app or spreadsheet that helps track your financial accounts. Whenever you open a new account, add it to the app or spreadsheet so you have a single place you can use to keep an eye on all your financial accounts. That can help you make sure nothing falls through the cracks.
Original source: Bankrate