With interest rates on savings accounts still the highest they’ve been in years, it pays to save.
But while having one savings account is good, many financial advisors and budgeting experts actually recommend keeping several, even if the balance in each one remains small. Having more than one account makes it easy to earmark money to different goals, like buying a house, throwing a wedding or taking a long-awaited trip to Europe.
You can “visualize your goals and the progress that you’re making,” says Andrea Woroch, who runs a budgeting blog for moms. “It can help you manage your finances and make better spending decisions.”
Of course, every person’s savings style is different, and having multiple accounts comes with the challenge of keeping track of different fees, withdrawal limits and minimum balances. Here’s what you need to know.
Should you have more than one savings account?
There’s no one way to save—someone just entering the workforce will have a different approach than someone on the brink of retirement. Still, there are some pros and cons that most savers should consider.
Pros of having multiple savings accounts
Saving for your goals—whether aspirational like a down or mundane like your tax bill—by stashing your money in separate accounts makes it easy to track your progress.
Instead of throwing all the extra money from your paycheck into one place, you’re able to give every dollar a “job” so you know exactly where it’s going. “It’s like having a filing cabinet for all of your files,” Woroch says. “It can make you feel more in control.”
While easy bookkeeping is the most obvious advantage of opening more than one account, there’s a motivational benefit of doing so too.
Establishing different goals—and regularly checking your progress toward them—can help you stay inspired, says Scott Rick, a marketing professor at the University of Michigan who does research in behavior.
When we get close to finish lines, we tend to accelerate our efforts—and having multiple accounts gives you plenty of finish lines to strive toward, he adds.
“It’s crystal clear how far away you are,” Rick says.
Cons of having multiple savings accounts
Keeping track of several accounts can require a bit more homework than keeping track of just one. Still, it gets more complicated if you want to chase the market’s top interest rates, since accounts that advertise the most eye-catching rates often come with assorted fees, minimum balances and withdrawal limits and more.
For example, right now, Poppy Bank offers a 5.5% interest rate on its high-yield savings accounts, one of the best rates you can find. But the account requires you maintain a balance of at least $1,000 to earn advertised rate. While that’s not a huge hurdle for many savers, it’s more likely to become one if the account holds just a sliver of your funds.
How many different savings accounts should I have?
While there’s no blanket answer for how many savings accounts you should have, Woroch recommends at least two on top of the investment accounts you’re using to save for retirement: one for emergencies and one for goal-based savings for purchases like a home or car.
Financial advisors typically recommend that an emergency fund is large enough to cover at least three to six months of your expenses so you can quickly pay for unplanned purchases like health expenses or car repairs.
The goal-based savings account can consolidate money for your short-to-mid term goals, Woroch says. But some people like to break that out into accounts earmarked for certain expenses that are important to them, she adds. If you love traveling, it may make sense to have a separate vacation fund. If you have a pet, you may want to open a separate savings account for veterinarian bills.
How to manage multiple savings accounts
While having multiple savings accounts can help you put money toward your various future goals, it can cause your money life to get a bit messy if you don’t stay organized. Here are tips for managing your accounts:
Limit the number of banks you use
Opening all your savings accounts with one institution can help you stay organized, says Carla Adams, a financial advisor based in Lake Orion, Mich. You might miss out on the promotional interest rate bumps that come with opening an account at a new bank, but those rates typically don’t vary drastically enough to be worth the possible disorganization.
You also won’t have to remember the different fees, withdrawal limits and minimum balances that may pop up at various institutions. “I am really big about consolidating accounts to as few institutions as possible just for simplicity,” Adams says.
One caveat: If you have more than $250,000 in savings, be sure to take extra steps to make sure you don’t bump up against FDIC insurance limits.
Label your accounts
Setting up accounts with certain goals in mind can help you stay motivated since it’s easy to see just how close you are to having enough for that vacation or new car—but actually labeling those accounts can keep you organized.
Some financial institutions have options to save for different goals without needing to open a ton of different accounts.
Ally, Buy Side from WSJ’s pick for best online bank, allows savers to open up to 30 “buckets” within one savings account that are each designated to a specific goal. Investing company Betterment’s cash reserve account, which currently earns 4.75% APY, also lets you create multiple savings goals.
Automate your savings
Most banks allow you to set up automatic savings so that money is transferred into certain accounts without you initiating the move. Having a portion of your paycheck automatically sent to your wedding or vacation fund helps deter you from spending it elsewhere, Rick says. You also won’t have to remember to fund each of your different accounts every month; the automation will do it for you.
Do what makes sense for you personally
Many of the benefits of having multiple accounts go out the window if you forget where your money is or which fees and penalties apply to which accounts because you can’t keep track of the various rules. So make sure to pick a savings strategy that works well for you.
“Some people function well using one savings account and piling any short-term savings on top of their emergency fund,” Adams says. “Other people mentally really benefit from having a couple of different savings accounts to save for short-to-mid term goals.”
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Meet the contributor
Mallika Mitra
Mallika Mitra is a contributor to Buy Side from WSJ.
