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Updated on Monday, November 4, 2019
Many adults do not have money tucked away for emergencies, let alone planned expenses. A 2018 report from the Federal Reserve found that about one-quarter of families have less than $400 in available liquidity, and about 60% of families do not have at least three months of expenses saved up.
As such, the prospect of having multiple savings accounts can seem daunting. And, if not set up correctly, it can be.
However, there are many benefits to having more than one savings account, which can help you achieve your short- and long-term savings goals.
Should you have multiple savings accounts?
Multiple savings accounts can be valuable financial tools provided you are willing to take the time and effort to set up and monitor them on a regular basis. Because there’s not always a limit to how many savings accounts you can have, at your bank or elsewhere, you have the option to tailor them to your savings goals.
For instance, you can open up to 19 online savings accounts at Alliant Credit Union. Delta Community Credit Union permits members to open an Additional Savings Account to save for special purposes. At Wells Fargo and Bank of America, you can open as many savings accounts as you like.
But if you are not an organized, detailed person, mismanaging multiple accounts could result in hefty fees and lost opportunities for interest, not to mention failing to achieve your savings goals. Know your limitations so that if you set up multiple savings accounts, you will find the right number that works for you.
Why it’s smart to have multiple savings accounts
Multiple savings accounts can serve a multitude of purposes, from separating your money to optimizing interest rates. Spreading your money around also has many benefits that you may not get with all your eggs in one basket.
Set and achieve savings goals
Depositing your money into one savings account can make it difficult to determine when you have enough funds for a specific savings goal, such as buying a car or paying for a vacation. By setting up a savings account for each goal and labeling that account with the goal’s name or a nickname, you can clearly see how much money you have saved toward that goal, as well as when you reach your target.
Provide a safety net for your checking account
Many banks and credit unions, such as Chase Bank and Chime, offer overdraft services that automatically make transfers from a savings account to a checking account to cover overdrafts. This could save you fees for insufficient funds or returned checks, among other things. For instance, Citi charges a $34 insufficient funds fee, while Ally charges $25 as of the date of publishing.
Increase your number of withdrawals
At most banks and credit unions, certain types of telephone and electronic withdrawals, including transfers from savings accounts, are allowed up to six per statement cycle, per the Federal Reserve’s Regulation D.
Banking institutions may impose penalties if you make extra withdrawals from a savings account. Additional withdrawals can incur substantial fees. A bank may even convert your savings account to a checking account or close the account altogether. However, you can increase your number of available withdrawals by setting up multiple savings accounts at different banking institutions.
Take advantage of interest rates
Like other financial investments, savings accounts typically offer interest, which can vary. Currently, the average APY on savings accounts is 0.28%. However, higher rates are available, such as 0% APY with the CIBC Agility Online Savings Account and 1.00% APY with the Barclays Online Savings account.
“Banks often go through phases when they are more or less competitive with their rates,” said Ken Tumin, founder and editor of DepositAccounts, which, like MagnifyMoney, is owned by LendingTree. “So by having multiple savings accounts, it can make it easy to move money to the account that offers the highest rate.”
Such a move could help you grow your money at a faster pace.
Make transfers easier
Having multiple savings accounts at the same institution where you have existing financial accounts or products makes it easy to move your money around.
For instance, you can set up automatic deposits to your savings account from your checking account, which helps keep you on track for reaching your savings goals. Or, if you have one or more certificates of deposit (CDs) at a bank, once a CD matures, you can easily transfer those funds into your savings account, Tumin said.
The challenges of managing multiple savings accounts
While the benefits of multiple savings accounts can be great, there also could be some pitfalls. Before setting up any accounts, it’s important to weigh the pros and cons to know what you’re embarking on in your financial journey.
Tracking and monitoring the accounts
If you are not a detail-oriented person, trying to keep track of several savings accounts can be confusing and overwhelming. It’s important to have processes in place to help you maintain a clear picture of all your accounts.
For example, maintaining a spreadsheet listing each account, the account’s balance, deposits, withdrawals and any fees can help provide an instant status of each account, provided the spreadsheet is updated regularly.
Maintaining minimal balances
While opening a savings account can be easy, banks and credit unions often require a minimum balance, such as $100, to earn interest and avoid incurring fees.
In some instances, you can continue to maintain those accounts if the minimum balance drops, but you may incur fees. That can be tricky if you are more focused on one savings account than another.
Paying higher fees
Some banks and credit unions waive fees on savings accounts if you maintain a minimum balance or have a minimum amount direct deposited into the account each month. Failure to meet those guidelines could result in high fees.
For example, depending on the type of savings account, Chase charges between $5 and $25 a month if the required guidelines are not met. Likewise, if you make more withdrawals a month than allowed, you could be charged hefty fees for each withdrawal beyond the maximum permitted.
Losing time to transfers
If you have multiple savings accounts at the same bank as your checking account, transfers could occur quickly — in one day or less.
However, if you have multiple savings accounts set up at other banking institutions or credit unions, moving money from a savings account at a credit union to a checking account at a separate bank could take two days or more, making it difficult to access your money when you need it.
How to effectively use multiple savings accounts
When setting up multiple savings accounts, it’s a good idea to use different banking institutions to expand your Federal Deposit Insurance Corporation (FDIC) coverage beyond the legal limit.
“You can extend deposit insurance by at least $250,000 for each additional bank that you have,” Tumin said. That insurance coverage is not expanded if you have multiple savings accounts at the same bank.
Also, make sure you have online access to each account and log in at least once a month to view your statements, Tumin said. This allows you to confirm that any automatic deposits are being made and to follow up on any unexpected fees. Online access also makes it easy to electronically transfer funds between your savings accounts and your checking account.
Remember to set up alerts on each account to notify you when withdrawals are made or if your balance drops below a preset level. This could help you avoid unnecessary fees.
When reviewing the savings accounts’ policies, find out if there are any penalties for inactivity.
“Make sure you set up automatic transfers that occur once a month that will keep the accounts active,” Tumin said.
Having multiple savings accounts could go a long way in helping you build a firm financial foundation and achieve specific savings goals.
However, to make the most of these accounts, take care to set them up so they benefit you, and monitor them regularly to keep on track.