I’m a Bank Teller: 3 Reasons You Shouldn’t Open More Than 4 Savings Accounts
When it comes to the right number of savings accounts you should have, Kevin Miller, president and CEO of Travis Credit Union, said it should be based on need and will change over time.
“If you’re just starting out, having a savings account is all about separating your money into different buckets,” he said. “For example, a payment account or checking and savings.”
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When saving for a goal, Miller said some people are fine having just one savings account and placing multi-use funds in it, but different people have different preferences.
“Others want a general savings account, like a rainy day fund and then another for a specific goal, such as next year’s vacation,” he said.
Later in life, Miller said finding the right number of savings accounts is a balancing act.
“For people preparing for retirement, it’s about having access to liquid funds over the next few years while earning the right return between savings, using savings accounts, money market funds and CDs,” he said.
Essentially, there’s no general number of savings accounts that’s right or wrong. Instead, it’s finding the right number for you that matters.
Here’s a look at three reasons why you shouldn’t open more savings accounts than necessary.
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Unnecessary Complexity
“It’s important for consumers to consider the practicality of managing multiple savings accounts,” said Blake Whitten, financial advisor at Whitten Retirement Solutions. “Maintaining more than three to four accounts can lead to unnecessary complexity.”
On the surface, it might sound easy to have money just sitting in a variety of accounts, but there’s more to it than that.
“It becomes challenging to track various account details such as fees, interest rates and minimum balance requirements, potentially resulting in missed opportunities to optimize savings and earnings,” he said.
Your savings accounts are supposed to help you save money, not hinder your efforts.
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Increased Fees
As noted above, Whitten said having multiple savings accounts can cause you to rack up fees.
“Many accounts have maintenance fees that accumulate if not closely monitored across multiple accounts,” he said. “Consolidating funds into fewer accounts can simplify financial management and reduce the likelihood of incurring unnecessary fees and maintain a healthier credit profile.”
For example, if some — or all — of your accounts have a minimum balance fee it will probably be easy to ensure you meet these requirements with your initial deposit. However, if you take money out of these accounts, it can be hard to ensure you don’t go below minimum balance requirements, as different financial institutions — and even different savings accounts at the same financial institutions — have different requirements.
“This strategic approach not only promotes better financial organization but also supports a more cohesive strategy for achieving long-term financial stability,” he said.
The last thing you want is to put money in a savings account, only to have some of it deducted to cover a penalty for not meeting minimum balance requirements. Paying one month of these fees is bad enough, but this could go on for several months if you’re not closely monitoring the account.
Ease of Use
Some savings accounts are opened to put aside money for long-term savings. However, some are intended to save for short-term purposes.
If you have money spread across several accounts, accessing the amount you need can be a headache. For example, if you need to transfer money from multiple accounts to pay an expense, it can take several business days to get all the funds in the right place.
It’s also not uncommon for financial institutions to impose limits on the number of transfers you’re allowed to make each month. Depending on how often you’re using these accounts, it can be challenging to keep track of the number of transfers you’ve made and from which accounts.
Ultimately, the idea of having many savings accounts can be a great idea on the surface. If you’re someone who likes to completely separate the money you’re saving for different goals, this might feel helpful.
Since the interest rate you receive on savings accounts varies by bank — and sometimes even by account at the same bank — it can be tempting to keep opening accounts as you find more competitive rates. Overall, this isn’t a bad strategy, as it can allow you to increase your interest earnings.
However, if you have more than a few savings accounts, it’s probably best to close one as soon as you open another. This will ensure you don’t get in a situation where you have too many accounts to reasonably handle.
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This article originally appeared on GOBankingRates.com: I’m a Bank Teller: 3 Reasons You Shouldn’t Open More Than 4 Savings Accounts