old adage, “Don’t put all your eggs in one basket,” warns us not to put all our resources into one risky endeavor. This well-established proverb could easily apply to savings accounts—a risk-avoidance way to put money aside for a rainy day. Savings accounts are low-risk deposit accounts that enable you to Create a fund that can be used for purposes such as emergency savings or to reach a financial goal.
Banks use deposit accounts to finance lending operations. In exchange for the right to invest your money and make a profit, a bank or credit union will pay you interest on the balances it collects. Your money grows as well as stored safely in a bank or credit union that is insured by the federal government. Loss savings accounts are insured by the Federal Deposit Insurance Corporation, if opened through a bank, or the National Credit Union Department of Accounts in a credit union in the amount of up to $250,000 per person.
But if you’re like the half of Americans polled in a recent GoBankingRates survey who said they’re loyal to only one bank and keep their reserves in one place, you’re ignoring seven practical reasons for having more than one savings account.
1. Automate the growth of savings
The principle of “out of sight” comes in handy when savings accounts are not connected as overdraft protection or with simple transfer access to your main bank account. You’re less likely to think about daily expense accounts or impulse purchases if you’re not constantly reminded of your savings balance. Combine this with an automatic deposit or transfer, and your balance can grow unscathed. Separate savings accounts can benefit from a set-and-forget approach.
2. Reduce the chances of overspending
Segregated banking institutions can provide a useful hedge against excessive spending. While accounts can be linked to facilitate transfers through the Clearing House Network, such transfers generally take up to three business days to complete. The additional effort required to transfer funds and the time required to complete the transaction provide a cool-down period. Impulsive purchases, or unnecessarily expensive purchases, can be filtered out, with less immediate access to your savings account.
3. Find the best crops
In the age of high interest rates, shopping for savings accounts that offer the best returns is a must if you want to increase your savings. CNET updates a list of filesWith many online offering applications available nationwide. Given that most banks or credit unions offer top-notch security, access, and a variety of services, finding an account with the highest annual rate of return, or APY, will help your money keep up. .
4. Track your progress
When working to reach financial goals, using separate accounts to track progress is a powerful strategy. Some people use separate accounts to save on expensive items like saving for college, making down payments on a car or home, or taking a life-changing vacation. Separating savings accounts will show how close you are to a particular goal. A visual reminder can build momentum to help you stay focused on your goal.
5. Keep your money safe
The federal government began supporting banks as part of the New Deal under President Franklin Roosevelt as a policy to address bank failures during the Great Depression of the 1930s. As mentioned earlier, deposit accounts at banks and credit unions backed by federally insured organizations such as the FDIC and NCUA are covered by up to $250,000 per person, and covers all accounts in any one banking institution. When deposit account balances approach that magic number, opening a new savings account in a separate bank is not only wise, but necessary to ensure your money is covered against bank losses or failures. While the banking industry is fairly stable, bank failure happened in recent years.
6. Take advantage of the rewards
Useful incentive to open a new savings account. These rewards can range from a few hundred dollars to $500. Bonuses come with terms that can range from a minimum direct deposit required to maintaining a monthly balance over several months.
7. Account management for minors
Creating a savings account for underage children is a great way to help them establish healthy financial habits at an early age and introduce them to practical financial training. A separate account can help them set savings goals and begin developing financial literacy that will help them into adulthood.
Steps to take when creating multiple savings accounts
- Select why you need multiple savings accounts. This will determine how many accounts you need and how you want the accounts to interact with each other. For example, if you’re saving for a new car because you want to pay with cash but are also saving for an international vacation, separate accounts will help you stay on top of the savings progress for both plans.
- Inquire about APYs and special offers offered by your bank. Contact a bank representative and inquire about opening additional savings accounts with higher APYs and whether there are special offers or bonuses available when opening another account.
- Find high-yield savings accounts Using online resources such as CNET’s Guide to . You can compare several features in addition to the APY, such as monthly fees, minimum balance requirements, and ATM access.
- Decide how you want to access your money. Do you need a physical bank, with customer service, to access your money in person, or do you prefer an online-only bank where you can manage your money from the comfort of your home? If a bank has physical branches, does the ease of accessing services tempt you to click on your account? You must also decide how you want to link your bank accounts. The ability to deposit money at regular and automatic intervals is key to building a healthy savings habit.
- Set a time to review your accounts regularly. Add a calendar reminder at least once a month to review savings goals and multiple account balances.
When should you avoid opening multiple accounts?
Having multiple accounts can be a great strategy for building and protecting your savings, but there are instances when opening an additional savings account is not recommended.
- The new account charges a service fee.
- You cannot deposit enough to waive the monthly service fee.
- You do not want to pay taxes on the bonus paid in your new account.
- You cannot meet the requirements that make opening a new account possible, such as a minimum monthly direct deposit amount.
questions and answers
How many savings accounts should I have?
This, of course, depends on your personal financial goals. There is no single correct answer. Aligning the number of accounts with key savings goals is one approach. If you find that adding or removing accounts will simplify your life and make tracking your progress easier, adjust accordingly.
Additionally, making sure that your balances at a bank do not exceed the federal insurance limits offered by the FDIC or NCUA can help you decide how many savings accounts are right for you.
How many savings accounts am I allowed to have?
While some banks may limit the number of accounts you can open internally, there is no limit to the number of savings accounts a single person can have. Opening savings accounts with multiple banks or credit unions will eliminate any restrictions imposed by one bank. Furthermore, there is no impact on your credit score to have multiple accounts.
Should I diversify my savings accounts across different banks?
- Your account balance in any one bank will exceed $250,000.
- You find the APY offer is better than your current bank offer with no additional fees that reduce your overall returns.
- You want to use strategies that track savings goals with individual accounts and one bank limits the number of accounts per person.
Smart savers use the strategy of opening multiple savings accounts to help them focus and achieve their financial goals. Using multiple savings accounts at different banks and/or credit unions provides a structure that can help you avoid impulsive purchases and overspending while setting your savings process on autopilot.