Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.
The precise number of bank accounts you need depends entirely on your situation. Ideally, everyone should have at least one checking account and one savings account. But some people may need several bank accounts, including multiple savings accounts and possibly more than one checking account.
Whatever number of bank accounts you choose, they should match your lifestyle. For instance, couples may want one joint checking account for shared expenses, in addition to separate checking accounts for their own for discretionary spending. If you're a freelancer, you might want to maintain separate accounts for business-related expenses and taxes. Parents may want to open checking accounts for each of their kids.
For Jovan Johnson, an Atlanta-based CPA and certified financial planner, it all depends on your money mindset and behavior. "For example, I prefer to have a different savings account for each of my goals such as emergency fund, vacation, car maintenance, clothing, etc. This provides me with comfort and motivation to adequately fund each account to fulfill each goal."
Ken Tumin, the founder of DepositAccounts, suggested that you split your accounts between online-only banks and brick-and-mortar banks. Online banks typically offer higher interest rates than physical banks, but the latter offers benefits too, like an easy way to deposit cash or access to a safe deposit box.
What kinds of bank accounts do I need?
There are a variety of different bank accounts, each designed to meet different requirements with specific services. Here are a few of the most common accounts, offered by most banks and credit unions:
- Checking accounts: Your main tool for handling the money you need for everyday spending. They offer high liquidity but lower rates than many of the accounts listed below.
- Savings accounts: The place where you save money for the long term. They offer more limited liquidity in exchange for generally higher rates.
- Money market accounts: A form of savings account, money market accounts generally offer higher interest rates but often require larger minimum deposits.
- Certificates of deposit (CDs): CDs are time deposits that limit your access to money in the account, in exchange for higher interest rates.
- Retirement accounts: Individual retirement accounts (IRAs) are tax-advantaged accounts designed to help you save money for retirement.
What are the benefits of having multiple bank accounts?
Maximize FDIC coverage with multiple bank accounts
Opening multiple bank accounts can maximize your Federal Deposit Insurance Corp. (FDIC) insurance coverage. The FDIC provides $250,000 in coverage per depositor, per institution. If your balance exceeds $250,000 at one bank or credit union, even if it’s divided between a checking account and a savings account, the extra is not covered by the FDIC.
For instance, if you had $400,000 at one bank — $200,000 in savings and $200,000 in checking — $150,000 of that total would not have FDIC coverage. By spreading your money among accounts at different banks, you'll ensure that all of your cash gets insured.
Multiple bank accounts can help organize your savings goals
Having multiple savings accounts is one way to organize your savings game. Opening savings accounts for each of your big financial goals can help motivate you. With multiple accounts, you can clearly track the progress you’re making toward each goal.
Use multiple bank accounts to take advantage of bonuses and higher rates
Many banks and credit unions offer special deals to attract new customers. If you're open to exploring those offers, you could reap rewards like a higher introductory APY or a cash bonus. "It's common to open CDs at other banks or credit unions to earn more interest on your savings," said Tumin. "Banks and credit unions often offer CD specials that have rates much higher than the standard CD rates."
Multiple bank accounts can increase your credit score
Using multiple accounts can be a good way to boost your credit score. "With FICO’s recent changes to its credit scoring model, banking accounts can be used to compute a credit score," said Sefa Mawuli, a wealth advisor with Citrine Capital. "This could be a good thing for those who don’t have a long or stellar credit history. For this to work in your favor, you’d have to maintain consistent or increasing account balances and have a longer account history."
What are the drawbacks of having multiple bank accounts?
The more accounts you have, the more difficult it can be to keep track of them all. "If you don't keep track of the accounts, you could be hit with inactivity fees and lose money from fraudulent transactions if you don't report them in time," said Tumin.
You could fail to meet minimum balance requirements
You need to keep track of the balances you have in your accounts, and if organization isn’t your strong suit, you could let balances fall below the minimum requirements. Many banks charge a fee if your account falls below the minimum balance requirement.
Multiple bank accounts could rack up fees
Many bank accounts are free, but there are plenty that do charge monthly maintenance fees and other fees. If your accounts charge regular monthly fees, you’re needlessly paying extra. Other accounts require you to meet certain requirements, like a minimum monthly deposit rule, to avoid fees. For example, Chase charges you $12 per month for its Total Checking account unless you meet certain criteria.
Having multiple bank accounts makes taxes more complicated
Interest earned from bank accounts is taxable. If you earn more than $10 in interest in one bank account annually, the bank or credit union sends you Form 1099-INT to report the earned interest income for taxes. Multiple bank accounts mean more complicated taxes.
How to manage multiple bank accounts
If you do decide to have a variety of bank accounts, make sure you're keeping track of them in some way. You could use a spreadsheet format or even a budgeting app like Mint. Comb through all of your deposits, transfers, payments and fees to make sure you're on top of it all. Missteps could mean fees, and you don't want that. If you're having trouble tracking your accounts, that means you should close one or more.
Do your research before deciding to open multiple bank accounts. For example, if you have a Wells Fargo checking account linked to a Wells Fargo Way2Save account, you'll get benefits like automatic savings transfers. At US Bank, you can get its highest-yield savings account by also opening its Platinum Checking account. The key is to only open the accounts that benefit you the most.