How Many Savings Accounts Should I Have?
Saving money is very important for every person. Savings accounts are a great tool for that purpose. High-yield savings accounts are even better at helping you hit your saving goals. They do that by paying you better interest rates compared to local banks. However, you might be wondering how many savings accounts you should have. Well, you have come to the right place. In this post, we will take a look at the things you should consider while deciding on the number of savings accounts you should have. Let’s get started.
How Many Savings Accounts Should I Have: All You Need to Know
Is there a limit to the number of savings accounts you can open?
When it comes to savings accounts, there’s no such thing as too much of a good thing. Banks usually allow customers to open multiple savings accounts if they want to do that.
Opening a savings account doesn’t hurt your credit score — unlike opening too many credit cards at once. If you choose savings accounts that don’t impose monthly fees or have account minimum balance requirements, opening multiple accounts also won’t cost you any money either.
The only true limitation that applies to the number of savings accounts that you can have at a given time is the number of accounts you need/can manage.
Is it wise to have multiple savings accounts?
Yes, opening multiple savings accounts can actually be a useful idea. It’s always good to have multiple savings goals and multiple savings accounts will help you keep money aside for it. Creating separate savings accounts for separate financial goals helps you reap multiple benefits. Here are some of those benefits:
- Easier automation: You can automate transfers of an appropriate amount of money to each different account so you can make sure you’re on track to hit all your savings goals. This could mean transferring $250 a month to your house down payment account; $50 a month to your car repair account; and $100 a month to your vacation account, for example. When you have multiple accounts, it becomes very easy for you to allocate the exact amount of money to every kind of savings.
- Easier goal tracking: Multiple accounts also make it a lot easier for you to track your progress on all of your financial goals. If you accumulate all your money in just one account, you will find it very difficult to track how the different funds are doing. In case you had a new car fund or a European holiday fund, it will be difficult to distinguish between their progress. If you’ve got a separate account for each goal, you can see exactly where you’re on track and where you’re falling short.
- Enhanced motivation: Saving money can seem like a hardship — but it’s easier if you can envision all the great things you’ll do with the cash you’re setting aside. Having separate accounts for each of your financial goals is also great for keeping you financially motivated. After all, that $50 or $100 deposit just got you closer to that vacation, the house you want to buy, or the financial security your emergency fund will provide.
- Reduced chance of misspending money: When you’ve got separate savings accounts earmarked for each goal, you’re less likely to misuse the funds you’ve set aside because it will be very clear to you what each dollar is meant for.
How many savings accounts do you need?
Since it’s a good idea to have a savings account for each financial goal you’re working towards, you’ll need to make a list of the financial goals you want to work towards currently. Then open an account for each of those goals. Some of the different types of savings accounts you may need include:
- A house down payment fund or a home repair fund if you’re already a homeowner
- An account to help you pay cash for a new car or to cover auto repairs
- An emergency fund which covers at least three months of living expenses
- A vacation fund for all your dream holidays
- A savings account for all the potential big purchases in your mind, such as a new 4K TV.
- An account to pay annual taxes if you end up owing the IRS or your state or if you don’t escrow your property taxes
Of course, you’ll also need accounts to save for retirement and for college for your kids. But those accounts shouldn’t just be standard savings accounts — you should look into accounts that provide tax advantages, such as a 401(k) or IRA for retirement savings and a 529 for college.
If you qualify for a health savings account because you have a high-deductible health plan, you should also open a health savings account with a broker that offers one. If you don’t qualify for an HSA, it may make sense to just have a standard savings account for healthcare expenses to help you cover out-of-pocket care costs.
How to manage multiple savings accounts?
Managing multiple savings accounts is pretty easy if you open all your accounts at one bank. Be sure to choose a bank that provides a good annual percentage rate (APR) so you can earn the maximum return on the money you invest.
Make sure the account doesn’t impose minimum balance requirements, either to avoid fees or to be eligible to earn the advertised interest rate. As you’ll end up spending money across multiple accounts, meeting those requirements will become more difficult.
Once all your savings accounts become operational, transfer the appropriate amounts of money to each separate account. Ideally, the money will move automatically from your checking account to savings as soon as you get paid so you don’t take a chance on not meeting your financial goals.
In order to figure out how much money to transfer to each account, you need to do some serious and careful budgeting. Another important thing is detailed goal setting. If you have an idea of how much money is needed by you to save in total, you can easily decide how much to transfer each week, each month, or each payday. After that, go ahead and fit those numbers into your budget to ensure that the cash is available to cover all of the transferred funds.
How many savings accounts should I have: Conclusion
You should have as many savings accounts as you need. Multiple savings accounts, when managed properly, work very well. Having savings accounts for different needs will ensure that you always have the money you need to cover costs. The process of saving and managing money also becomes significantly easier when you have different accounts for different financial goals. It’s something you should definitely try out.