Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.
Finances are extremely personal, which is why not everyone needs the same exact number of bank accounts. However, most people need at least one checking account and one savings account to conduct their financial business.
Here’s a look at when you might consider more.
How many bank accounts should I have?
First, let’s discuss the different types of accounts. If you have an income and pay bills, then at minimum, you generally need a checking account. In fact, almost nine out of 10 American households have at least one checking account, according to the Consumer Financial Protection Bureau. If you want to put some money aside and watch it grow, you’ll also want to open a savings account.
Beyond account types, you’ll also want to consider if you want to do business with more than one bank.
“I like the idea of having two banks that will compete for my businesses,” said Steve Azoury, owner of Azoury Financial in Troy, Mich.
When the time comes that you might want to apply for a home loan or another financial product, having these relationships in place will help you shop for the best deal, he said. “You’ll have two different people to sit down and talk with about what kind of rates and terms you can qualify for.”
Another reason to do your banking with more than one company is convenience. Sometimes, your preference “might be the local community bank or credit union down the street,” said Azoury.
But other times, such as if you’re on vacation or if you travel a lot, you might prefer having access to a branch in other locations, an option a large bank is more likely to provide. Choose one of each and you’ll have the best of both worlds, Azoury said.
Is there such a thing as too many accounts?
If you’re wondering if opening too many bank accounts might harm your financial profile in the same way that opening several credit cards at once can, don’t be too concerned, said John Breyault, vice president of public policy, telecommunications and fraud at the National Consumers League.
However, when you open a new bank account, the bank will likely run a background check on you via ChexSystems, a special credit reporting agency specifically for banking.
ChexSystems “exists to tell banks whether someone who wants to have an account is a good risk or not,” said Breyault. “The difference between ChexSystems and the other credit reporting agencies people are most familiar with is that this one really only exists to flag negative banking behavior, such as overdrafts, bouncing checks, etc.”
While having “too much credit” or “too many inquiries” can be harmful to your credit score, the number of banking accounts really shouldn’t matter, Breyault said.
“So long as you’re not doing overdrafts or getting hit with fees you’re not paying, the mere fact of having multiple accounts wouldn’t be a negative,” he said, noting that as people get older, it’s more likely that they will have multiple accounts.
For financial hygiene, Breyault recommended requesting a free copy of your ChexSystems report once every 12 months, especially if you plan to open some new bank accounts in the near future. “Look for errors that shouldn’t be on there, particularly if there’s an account you don’t remember opening, which may be a sign of a more serious problem like ID fraud,” he said.
Pros of having multiple bank accounts
So now that you know that having multiple accounts is OK, the question is do you really need more? Here are some situations that might call for several accounts:
- You have multiple savings goals. Some people like using savings accounts in the same way others might use an envelope or jar system — to separate different goals into their own buckets. So one account might be for emergencies, while another is for holiday gifts, and another might be for your summer vacation. Some banks and credit unions even let you create a nickname for each account.
- You have high balances. FDIC insurance only insures individual bank accounts up to $250,000. If you have more cash than that, you might want to spread your wealth around to various banks.
- If something happens, you have a backup. Between data breaches, IT outages and natural disasters, you might temporarily lose access to your cash or find your account "frozen" for some reason. Having money in another bank could provide some cushion.
Cons of having multiple bank accounts
For some people, keeping finances simple is a better approach. And the more accounts there are to manage, the tougher it might be to stay focused. Here are some reasons why too many accounts can be a negative:
- You can get disorganized. “If it’s too cumbersome to manage your accounts and there’s a lot of duplication, that’s silly,” said Azoury. And, if you’re not paying attention, you could miss out on special promotions on interest rates at one of your banks.
- You could increase your risk of fraud and identity theft. More bank accounts mean more online logins, more ATM activity and more paper statements floating around in the mail. “The more you’re out there, the more you’re exposed to the scammers,” said Azoury.
- You could struggle to meet minimum balance requirements. Some accounts might charge you a fee if you dip below a minimum balance. If your money is spread out, you might find yourself with the hassle of transferring money around just to avoid penalties.
While there is no ideal number of bank accounts for all people, there is an ideal number for you. Think about your goals and how much time and effort you want to spend managing your accounts, and find your banking sweet spot.