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Have you ever considered having multiple bank accounts?
Most people have a checking account to pay their bills and a savings account for their short-term financial goals and long-term savings.
But more and more people are using multiple accounts to better budget their money and to reach more of their savings goals.
In this post, I walk you through the biggest pros and cons of multiple bank accounts.
You will see how this system can improve your finances today as well as reaching your financial goals for tomorrow.
Table of Contents
10 Pros And Cons Of Multiple Bank Accounts
5 Pros Of Multiple Bank Accounts
There are many benefits when it comes to having different bank accounts.
Here are the ones most people experience.
#1. Less Complicated
Having different accounts for your emergency fund or to pay for holiday gifts makes things a lot less complicated.
Instead of having one account with $5,000 in it and having to do the math or keep track of how much money you have for each, you know right away.
You see that you have $4,000 in your emergency savings account and you have $1,000 in your holiday gifts account.
This saves you time and headaches from always having to keep track of things.
#2. Meet More Savings Goals
Related to the point above, having multiple bank accounts helps you to meet all of your savings goals.
It might sound crazy, but I have close to 20 savings accounts.
I have the typical emergency fund, but I also have savings accounts for many other goals, as well as irregular bills.
For example, I have accounts for savings goals like a vacation, holiday gifts, big projects around the house, and more.
I also have accounts for expenses too, like car insurance, life insurance, our annual sewer bill, etc.
By having everything separate, I am able to work towards meeting all my financial goals.
#3. Encourages You To Save
An often overlooked benefit to multiple bank accounts is that it encourages you to save.
When I log into my online bank, I see every account and their balance.
I see how much money I have saved towards my vacation goal and this motivates me to keep saving.
If I had this money in a single savings account, it would be hard to get excited because I wouldn’t know how much I had for each goal.
#4. Easier To Budget
While most of the advantages have centered around savings, there are benefits to having multiple checking accounts as well.
The biggest is when it comes to budgeting.
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The way many people use this strategy is to transfer money for their bills into a second checking account.
Then when the bill is due, they have the money to pay for it.
The money left in the original account can be used for discretionary spending, personal spending, and more.
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It can make budgeting simpler when you do it this way.
#5. Avoid Withdraw Limits
The Federal Reserve’s Regulation D, set reserve requirements for banks and credit unions and as a result, banks limit the number of withdrawals or transfers out of savings accounts or money market accounts to 6 per month.
If you only have one savings account for all of your goals, there is the chance that you could go over this limit sometimes.
For example, let’s say around the holidays you pay for gifts from your savings account, as well as your auto insurance premium, and for a small vacation.
If all this money is coming out of one account, you might make too many withdrawals if you don’t plan ahead.
The result is many banks charge fees, anywhere from $5 to $15 or more.
The good news is that in 2020, the Federal Reserve did away with this rule.
The bad news is banks re not required to comply, and many still impose the rule.
By having multiple accounts, you limit the chance of every going over the limit and avoid paying these monthly fees.
5 Cons Of Multiple Bank Accounts
There are drawbacks of multiple bank accounts as well.
Read below to see if any are a big enough red flag to make you think twice about setting up your finances in this manner.
#1. Harder To Manage
Having many bank accounts isn’t necessarily harder, it is just more time-consuming.
This is because instead of just making one monthly transfer, you now have to make 5 or 10.
The solution here is to set up automatic transfers, so you don’t have to remember to transfer the money.
You just have to set aside 10 minutes to set up the transfers going forward.
If you have multiple checking accounts, this is also more time consuming as well, as you need to stay on top of two accounts instead of just one.
But, the benefit of having separate accounts for budgeting purposes is bigger than the drawback.
And as you get used to this system, you will find it isn’t as time consuming as it might sound.
#2. Could Get Hit With Fees
While not common, there is the risk of paying more fees when you have additional bank accounts.
This could come from minimum balance requirements to a monthly maintenance fee, or even account inactivity fees.
However, if you set up your system with internet banks, you are almost guaranteed to not have to worry about fees as these banks typically don’t charge them.
It is mostly traditional brick and mortar banks that charges a wide variety of fees.
You also run the risk of overdraft charges if you don’t stay on top of your finances.
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While these fees are small, over time they add up and cost you a lot of money.
#3. Earn Less Interest
Another possible downside is that you earn less interest.
For most traditional banks, they set up their checking and savings accounts to pay interest on a tier basis.
This means if you have high balances in your account, you earn higher rates of interest.
If you have a small balance, you earn little to no interest.
Most banks have 3 tiers.
So tier one earn little or no interest, tier two earns a higher interest rate, and tier three earns the highest interest rate.
If you are banking with a physical bank, you could earn less interest because you have multiple accounts, each with a smaller amount of money in them.
Combined, you might have enough money to be in a higher tier, earning a higher interest rate.
Luckily, with online banks, you don’t have this issue as most don’t require certain balances for higher interest rates.
And the best part is online banks tend to pay better interest rates on both online checking and online savings accounts.
Finally, the advertised interest rate is the same, regardless if you have $1 in savings or $10,000 in savings.
#4. Increase Risk Of Fraud
While this is slim, there is an increased risk of fraud since you have multiple accounts.
When you have a single bank account, the thief has to get a hold of your account information, including your account number.
When you have a number of bank accounts, there is a greater chance of this happening simply because you have more accounts.
More accounts means more opportunity.
Again, this is rare and should not be the sole reason you decide to not have additional accounts.
#5. Automatic Transfers Get Tricky
The final downside to multiple accounts is if you have a lot of different goals you are funding.
Most people will set up automatic transfers to they don’t have to remember to move money into each account.
But this can make budgeting more time consuming as when you look at your checking account transactions, you will see many transfers.
And most times these transfers only have the last four digits of the savings account.
In some cases however, you can give your account a nickname to make it easier to track.
This makes it hard to know which account the money went to.
Additionally, if money is tight, you run the risk of not having enough money in your checking account to either fund your savings goals or to pay bills once the savings transfers happened.
The bottom line is, you need to pay attention to make sure everything is running smoothly.
There are 10 pros and cons to multiple bank accounts to consider.
While everyone is different, I find the benefits to far outweigh the drawbacks, and as a result, I follow this strategy.
It has helped me to better budget my money, improve my financial habits, and reach many more savings goals than if I simply put all my money into one savings account.
I encourage you to give it a try if it sounds of interest to you.
There is no cost, other than your time, and you can close the accounts if you find it isn’t for you.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.