You’re on thepath to getting your finances in order, but you often ask yourself, “how many bank accounts should I have?''. It’s not an uncommon question, and neither is it a trivial one.
One can argue that thequestion how many bank accounts can a person have is one of many keys to financial organization and success.
So how exactly does owning multiple bank accounts help you to achieve financial goals? And how many bank accounts can a person have? Let’s dig in and find out!
Aligning your bank accounts with your goals
So, to answer your question of "how many bank accounts should I have," you need tofigure out yourfinancial goalsfirst.
Give each account a purpose
The best way to organize your bank accounts is to give each account a job that's tied to yourfinancial goals. Typically and for the majority of people, yourpaycheckcomes into yourchecking account.
From there, it can serve several different purposessuch as payingrent,groceries, gas, car payments, etc. In addition to having achecking account, some people might also have asavings accountfor all theirsavings goals.
And while this setup of one checking account and one savings account is ok, it may not be optimal depending on your objectives.
You see,having multiple bank accountsand aligning each bank account with your goals can help you really hone in on achieving your specific objectives. As a result, you’ll have greater clarity and see more wins than you’ve ever seen before. So it can be smart to have more than one bank account.
How many bank accounts should I have and the different types of accounts
So, how many bank accounts can a person have? Well, there are endless options for thetypes andnumber of bank accountsyou can use. Payments Journal reported that the typical consumerhas approximately 5 accounts.
Understanding your needs first will help you determine what strategy is best for you. That said, let's talk about the different types of accounts.
1.Checking account
The basic account a bank will start you off on is typically achecking account. It can be your primary everyday accountwhere yourpaycheckcomes in.
Checking accountsgive you the fastest and most convenient access to your cash. They're primarily used for bill payments and for day-to-day financialtransactions.
Unlike asavings account,checking accountslet you make as manytransactionsas you need within a given month.Savings accountsoften have limits. Most banks will offer multiple options forchecking accounts.
Some come withminimum balance requirements, others with a monthly servicefee, and others with a limit on the number of checks you can use each month. Are you wondering, "how manychecking accountsshould I have?"
Well, itdepends on your financial needs. Here are a few examples of why you may consider having more than onechecking account:
You own your own business
If you own your own business, you will definitely need a separate checking account for it. It's essential that you keep your personal finances and your business finances separate. This separation will help you keep your business expenses and income clear.
Separate checking accountsfor bills and spending
Also, some people will getseparate checking accountsfor their bills and their spending. Then they're sure they have enough tocover their monthlyexpensesalong with whateverfun money they allocated for the monthwithout mixing the two together.
It can keep you from blowing your budget and overspending on non-essentials because you will see how much money you have for each category. However, it's more to keep up with so keep that in mind when deciding if this method is right for you or not.
So consider these situations when you ask yourself "how manychecking accountsshould I have" so you can adjust accordingly. Whatever the case, shop around andfind a bank that meets your needs.
2.Savings accounts
Now you may also be wondering, "how manysavings accountsshould I have?" Well,savings accountscome in various shapes and forms. As you go through your search, you’ll likely come across the following:
Regularsavings account
Regular savings accounts are the most basic interest-bearing accounts you can have to store your savings. Banks and credit unions offer savings accounts that will allow you to park some funds in the account,earn a little interestand withdraw the money when the need arises.
Savings accountssometimes come with restrictions,such as limiting the number ofwithdrawalsyou can make. However, they give you a place to grow your money securely.
Online savings account
In the past decade alone, the number of online-only banks has risen. These banks typicallyoffer sweeter deals by way ofhigher interest ratesand lowmonthly fees(if any at all).
Withonline savings accounts, you’re mostly getting the convenience of quick service at the touch of a button. And you won't have to stand in lines to speak with a teller.
To start, you can link an existingchecking accountwith yoursavings account. You’ll also be able to make deposits through other accounts as well, and you’ll have the ability to deposit checks right from your phone.
Traditional banks caught on to this trend and have since created their own online savings options. However, thehigher interest ratesoffered by online savings banks are still worth looking into.
Certificate of deposit(CD)
Acertificate of depositserves the same purpose as asavings accountbut has one extra catch – your money is locked in to the account for 6 to 18 months or more depending on the terms you select. If you cash theCD, you'd be subject to apenaltyon the interest you've earned.
If you need quick access to your cash, aCDmight not be the best option because of thepenalty. But if you’re looking for ahigher interest ratewithout the need to access your funds, then aCDmay be exactly what you need.
Money market account
Money market accounts allow you to save money with an account that acquires higher interest than a savings account. You can use it to make purchases, but it also has a better interest rate than a regular savings account. So, it may be good for mid-term finance goals or savings.
What to use yoursavings accountfor
Now that you know thetypes of savings accountsyou can have, you may still be wondering what exactly you would use them for.
Here are some examples of accounts you could have tied to yoursavings goals:
- Emergency fund savings account
- Giving fund savings account
- Sinking fund savings account
- House down payment savings account
- Savings account for short-term goals e.g. vacation, wedding, etc.
Assigning asavings accountfor each goal helps you easily track your progress and to keep the lines clear on what the funds are for. Additionally,savings accountscome with the added benefit of earning interest. Even though it may just be a small amount, you don’t want to miss out on that perk!
Again, when asking yourself, "how manysavings accountsshould I have" determine your goals and go from there!
3. Retirement investment accounts
When you determine "how many bank accounts should I have," you should always consider your retirement accounts.Investment accountscome in all shapes and sizes, and careful consideration should be taken when choosing one.
The main purpose of investment accounts is to help youachieve yourretirement savingsgoals or to assist withlong-term goals. They essentially help you put your money to work. When it comes to retirement accounts, there are 3 main types:
401(k)
A 401(k) is anemployer-sponsored investment planthat gives you, the employee, a tax break on any money you put in it to save for retirement. The beauty of a 401(k) is that the money is automatically deducted from yourpaycheck. So you don’t have to actively manage the process.
The money is invested into funds that you choose ahead of time.
Some benefits of a401(k) include the fact that some employers will match your contributions– which is a seriously sweet deal! Contributing to your 401(k) willlower your taxable incomemeaning less money going to the IRS.
Additionally, if you leave your employer, you can take your 401(k) with you and roll it over into anIRA.
However, if you’re ever short on cash and are considering making awithdrawalfrom your 401(k), don’t bank on it. Withdrawing money in advance of your retirement age will result in a seriouspenaltyplus income tax.
Not all employers offer a 401(k), and if you fall into that category, don’t despair!Equally good alternatives exist for youto stay on top of your retirement plans.
Individual retirement account (IRA)
As mentioned above, if your employer does not offer a 401(k), then you’ll want to set up anIRAaccount. A 401(k) is employer-sponsored, whereas anindividual can open anIRA. Both offer tax advantages.
One of the main advantages of anIRAis that it offers you a wide range of investment options, so you canwork with a financial advisorto choose the optimal mix for your needs. Wondering,"How manyIRAaccounts can I have?". We break it down in this article.
403(b) or 457(b)
For employees who work in tax-exempt institutions such as non-profits, public schools, or even church ministers,a 403(b) plan is the typical retirement planoffered up. It's available to teachers, school admins, nurses, doctors, government employees, and professors, among others.
A457(b) is for state and local government employees,including police officers, firefighters, and other civil servants. Mutual funds and annuities are typically the investment options of choice under this option.
4. Non-retirement investment account
If you’ve set up your retirement account andstill have extra cash to spare, then a non-retirement investing account may be a great option to consider.
A regular investment account comes with many benefits, including the ability to access your funds without being penalized and the ability to save beyond your 401(k) orIRA.
These account types can be set up with abrokeragelikeVanguardorFidelityor with a Robo-advisor.
5. College saving (529b) / Custodial accounts
If you have kids, a529 plan or custodial accountis perfect for helping you save for their education. 529 plans are valid for educationexpensesstarting from elementary school all the way through college and beyond. When a child reaches college and beyond, these funds can go towards books, tuition, room and board, andschool supplies.
The major benefits of the 529 account are that taxes are deferred as the money invested grows, and anywithdrawalsmade that go towards schoolexpensesare tax-free.
Should you have bank accounts at different banks?
So, since we answered "how many bank accounts should I have" let's cover if you should use multiple banks. The answer is, it depends on what's best for your financial needs. Having all your accounts at one bank is clearly a simpler and cleaner path.
Transferring funds between accounts is quicker, and it is also much easier to view all your information in one place. On the other hand, having accounts at different banks could be really handy in various situations.
Reasons for multiple banks
If you're in a relationship andhave ajoint account, keeping that account at a bank different from your personal account could help from an organizational point of view. (Keep in mind, you can alwaysclose thejoint accountif things don't work out).
Or are youworking on your financial discipline?Don't want to be able to easily transfer money between accounts? Then having separate banks might make sense.
Other reasons for using a different bank include if you want to track freelancing income or if you run a small business and want to track yourbusiness financesseparately. And sometimes,having accounts at different banks could actually help you keep more money in your pocket.
How to stay organized
Now that you've answered, how many bank accounts should I have, let's talk about keeping your finances as simple as possible. Keeping your finances orderly will really help if you have multiple accounts.
However, having too many accounts without any organization can get confusing and can even cost you! Overdraft fees were in the billions in recent years– ouch!
Being organized will save you in many ways, like helping youend thepaychecktopaycheckcycle,pay off debt fasterandachieve your overallfinancial goals. It can also help you stay on top of yourfinancial record keeping.
It's not always a question of how many bank accounts can I have, but how many can I use without feeling disorganized? Here's how to stay on track.
Online systems and apps
Use online banking and apps whenever possible. Online options allow you to check your accounts from your phone and regularly be updated about anything that changes. Having full access to your accounts all the time will help you stay organized.
Regular check-ins for each account
Check on your bank accounts at specific times. The ones you use each day should be checked daily for amounts and any changes. Your accounts you use less frequently should still be checked often, perhaps weekly.
Customize how many bank accounts you have to fit your needs
So, how many bank accounts can a person have? Basically, as many as they need! As you can see, you canhave multiple bank accountsto help you take control of your financial future.
Not only is doing this a smart move, but it can also help you to gain real clarity on where exactly your finances are going and how far you are from achieving certain goals. If you still depend on one account to meet all your needs, what are you waiting for? Try multiple accounts today!
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