Yahoo Finance Experts: This Is the Maximum Number of Financial Accounts You Should Have
If you’re like many other people, you probably have at least one checking account and one savings account. But you might also have a couple of investment accounts, some credit cards, and some loans. You may even have an account for your emergency fund, a business banking account and a Health Savings Account (HSA).
The question is, do you have too many financial accounts or not enough? And how many accounts should you actually have?
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The answer depends on your situation and needs. While some people can get away with having only a few accounts, others might see a need for more.
GOBankingRates spoke with several financial experts to get their thoughts on the right number of financial accounts and what to do if you have too many. Here’s what they said.
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Keep Things Simple If You Can
“I am a huge fan of keeping things as simple as possible, including the number of financial institutions you have a relationship with and the number of financial accounts you have at those institutions,” said Chris Urban, certified financial planner (CFP), Retirement Income Certified Professional (RICP) and founder at Discovery Wealth Planning. “For most people, I think a relationship with two to five financial institutions is very doable.”
So, what does this look like for the average person?
“I think most people can get away with one banking relationship for savings and/or checking account(s) and one relationship for brokerage and non-employer plan retirement accounts,” Urban said. “Then, if someone is still working, [they have] their employer retirement plan provider, if they are different. If you have some kind of debt (mortgage, auto, student loan, etc.), you’ll likely need to keep those relationships as well, at least until the debt is paid off.”
If you have too many accounts, Urban suggested consolidating the accounts you can. For example, you could merge two retirement plan accounts like your IRAs. Or you could combine two different checking or savings accounts. You’ll just need to make sure they fall under the same banner or account type.
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The Right Number Depends on You
When it comes to choosing how many financial accounts to have, what works for someone else might not work for you.
“Figuring out how many financial accounts to have isn’t about hitting some magic number; it’s about setting yourself up with what genuinely fits your lifestyle and goals,” said Nathan Jacobs, senior researcher at The Money Mongers, Inc. “Think of it this way: you’ll likely want a checking account for everyday spending, a savings account for building that rainy day fund or saving up for big purchases and maybe a couple of investment accounts if you’re trying to grow your wealth over time.”
“Go overboard with too many accounts and you might start feeling like you’re desperately trying to spin plates just keeping track of it all,” Jacobs said. “As a general rule, if you’re juggling more than a handful, it’s probably time to rethink and streamline…Stick to just the essentials for covering your basic expenses and future goals and you’ll be golden. Simplicity is key for long-term financial wellness.”
If you’re feeling overwhelmed with too many accounts, take things slow. Take a look at your accounts, one at a time, and ask yourself how it’s benefiting you. If it’s just sitting there doing nothing, it may be time to let it go or consolidate it with another.
Have Different Investment Accounts
“If you have multiple financial goals, take advantage of having different types of investment accounts (such as a retirement account, like a 401(k) or IRA, a brokerage account to buy stocks and exchange-traded funds (ETFs) and a high-yield savings account for goals you need to reach within a few years,” said Erika Kullberg, an attorney, personal finance expert and founder of Erika.com.
Each of these accounts should be tailored to a specific financial goal. Once you’ve met that goal, or if your goal changes, you might want to close the account to keep things simple.
Make Sure Every Account Has a Purpose
It’s all too easy to end up with a bunch of accounts you no longer want or need. This is especially the case with accounts you’ve had for years or decades.
“The best advice I could give, is to avoid having accounts that don’t have a purpose,” said Corey Noyes, owner and financial advisor at Balanced Capital. “If you like to have ten savings accounts for different goals, fine. But if you find yourself with five savings accounts that you can’t remember why you opened, it’s time to consolidate.”
If you do have a lot of accounts geared toward different savings goals, consider using an app to simplify things. Or use a free tool like Credit Karma to link your accounts and make them easier to manage.
“People used to sometimes set up separate savings accounts for separate goals, but you can achieve the same thing with budgeting apps now, so opening multiple savings accounts for that purpose usually isn’t necessary,” said Todd Stearn, founder and CEO of TheMoneyManual.
Consider Safety and Security When Choosing Your Accounts
Although you can keep all — or most — of your accounts in one place, you might want to diversify a little. This is to help minimize any risks and maximize the security of your money.
“Spreading accounts across institutions reduces risks associated with bank or custodial failures, as well as security breaches, while deposits are insured (by FDIC or NCUA) up to certain limits,” Kullberg said.
Typically, the FDIC will insure up to $250,000 of the money in your account against bank failure. If you have a higher balance than that, you might want to open a different account for every multiple of $250,000 to ensure it’s protected.
Roll Over or Consolidate Your Financial Accounts
If you simply have too many accounts, start by consolidating the ones you can.
“If there’s one particular financial institution you enjoy being a customer of, roll over your accounts so that they are ‘under one roof,'” said Georgia Lord, CFP and head of planning at Corbett Road Wealth Management. “Automation plays a role here, too. Ensuring you are automating savings and expenses from certain accounts can help to reduce the manual labor spent managing every single account you have.”
Once you’ve rolled over the accounts you can close the old ones.
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This article originally appeared on GOBankingRates.com: Experts: This Is the Maximum Number of Financial Accounts You Should Have
