Key Takeaways
- The ideal number of savings accounts varies based on each person’s individual savings goals.
- You can create multiple savings accounts so that each one addresses its own financial goal — such as an emergency fund or college fund.
- Using multiple savings accounts can make it easier to monitor progress toward a savings goal, but tracking can get complicated as you deal with multiple statements.
- You can reduce the complexity of multiple savings accounts by automating deposits and transfers and using personal finance tools and apps.
Is There an Ideal Number of Savings Accounts to Have?
The ideal number of accounts to have varies from person to person based on their savings goals. But financial professionals recommend that people should have at least two savings accounts — one for short-term savings and one for long-term goals.
- Short-Term Savings Goals
- These include anything that you will need money to pay for within the next year or two, such as an emergency fund, vacation, or down payment on a new car or house.
- Long-Term Savings Goals
- These include savings goals set years into the future such as retirement or your kids’ education fund.
Short-Term vs. Long-Term Savings
But you can further break these down into separate accounts for each goal — an emergency fund account, a new car account, a Christmas club account and so on.
Examples of Funds You Can Create With Multiple Savings Accounts
- Emergency fund
- Business start-up fund
- Car down payment fund
- College fund
- Furniture fund
- Home down payment fund
- Home project fund
- New baby fund
- Vacation fund
- Wedding fund
Some financial professionals also recommend that you have at least two checking accounts — one for bills and one for lifestyle. By creating these separate accounts, you can break up your paycheck into the different categories that meet your personal finance goals.
How to Determine How Many Savings Accounts You Need
While multiple savings accounts can help some people better manage their savings, they can become confusing or overwhelming for others.
It’s important to consider your financial situation and goals along with whether multiple accounts fit your personal money management style.
Factors to Consider When Deciding on the Number of Savings Accounts to Have
When deciding how many savings accounts you need, you should consider your financial goals, income, expenses and how well you can manage multiple accounts.
- Financial Goals and Income
- Establish the goals of each account, determine how much to deposit each month and balance that against your income.
- Monthly Expenses
- Make sure that after you make multiple savings deposits each month, you have enough to cover monthly expenses.
- Spending Habits
- Having multiple accounts with specific goals can help you break spending habits. Smaller balances in multiple accounts may make you less likely to transfer money to your checking account to cover other purchases.
- Personal Preferences
- Managing multiple savings accounts requires extra work, make sure it fits your personal financial management style.
What To Consider
Benefits and Drawbacks of Having Multiple Savings Accounts
There are several benefits of having multiple savings accounts — but there are drawbacks as well. It’s important to consider all of these when deciding whether to open multiple savings accounts.
“Some banks offer benefits to account holders, such as zero ATM fees or discounts on mortgage rates offered through the bank’s lending department,” Josh Dudick, a portfolio manager and CEO of wealth and investment site Top Dollar, told Annuity.org. “It makes sense to have multiple savings accounts if these perks add significant value.”
Pros & Cons of Multiple Savings Accounts
Pros
- It is easier to track progress toward each goal than if all your money is in one account.
- Gives you greater flexibility in managing your money by increasing or decreasing the amount you set aside for a particular goal.
- Lets you keep your emergency fund separate from other savings.
- You can reach your goal sooner by prioritizing one account over another.
Cons
- Tracking can get complicated with multiple statements.
- Managing multiple accounts may distract you from your actual financial goals.
- You may lose out on higher interest rates by having multiple accounts with lower balances.
- You may have to pay fees for low balances.
Multiple savings accounts can limit your spending and allow you to better monitor your progress toward a savings goal. But it will require a lot more work on your part to manage multiple accounts.
“Having multiple savings accounts can become challenging to manage if you’re not organized,” Sophia Jones, an investment analyst at Canadian personal finance website Piggybank told Annuity.org. “Keeping track of multiple accounts can be confusing, and it may lead to forgetting to make payments or missing out on the interest.”
What Are the Different Types of Savings Accounts
There are several different types of savings accounts that have different features, benefits and drawbacks that may affect how effective it is for your savings goals. It’s important to compare these carefully to determine which is best for each goal.
Comparing Different Types of Savings Accounts
| Type of Savings Account | Features |
|---|---|
| Traditional Savings Account | Tends to earn the least interest.
Easy to open at traditional banks. Monthly fees may be greater than interest earned. |
| Money Market Account | Tends to earn more than a traditional savings account.
Easy access to your money when you need it. You may be limited on how often you can make withdrawals. |
| High-Yield Savings Account | Typically earns more than a money market and can earn over 12 times as much as traditional savings accounts.
Interest rates are variable and may decline in the future. Most are found only through online banks. |
| Certificate of Deposit (CD) | Tends to earn more than high-yield savings accounts.
CDs are purchased for a specific period — a term — and withdrawing before the end of the term can result in high penalties. |
Some savings accounts require you to keep your money in the account for a specific amount of time or limit your withdrawals. While these may be a good way to save for a home down payment, they would not be practical for an emergency fund — where you will need money immediately and unexpectedly.
You’ll want to think carefully about the purpose of each account and how well it’s suited for your goals.
How to Manage Multiple Savings Accounts
Having multiple savings accounts requires more work to manage your finances. You can reduce some of that workload by automating your savings deposits and by looking for fee-free accounts.
Using personal finance apps or spreadsheets to manage your multiple accounts will let you better track your savings.
But you should have a plan on how to manage multiple savings accounts before you even open the first one. You can set yourself up for success if you have a strategy on how to use your accounts effectively, efficiently and economically.
- Give every account a goal.
- Determine the specific goal you want to achieve with each savings account, whether it’s an emergency fund, down payment on a house or car, or other goal.
- Shop around.
- Compare savings accounts — monthly fees, annual yield and other things that will cost you or earn you higher interest. See which savings account best fits the goal you’ll use it for.
- Commit to monthly savings.
- Determine how much money you will save each month — or from each paycheck — in each account. Multiple savings accounts will give you flexibility in deciding if you want to save less in one and more in another some months.
- Automate your account.
- Once you have your monthly savings figured out, set up direct deposit into each account. This will make it easier to save “automatically.”
4 Tips to Manage Multiple Savings Accounts
As you build your savings, you’ll want to make sure it stays insured. The FDIC will insure your accounts for up to $250,000 per customer, per type of account at FDIC-insured banks.
“It is best to find the highest interest rate you can and put your savings into that savings account until you reach the $250,000 FDIC coverage limit,” Doug Carey, a Chartered Financial Analyst and founder of financial planning company WealthTrace, told Annuity.org.
Anything above that limit at a single bank would not be FDIC insured if the bank were to fail. So, if you have two savings accounts at the same bank, with a total balance of $350,000, then $100,000 of your savings will not be insured if the bank fails.
“At that point, you should stop contributing to that savings account and open another one at a different bank, “Carey said.
Frequently Asked Questions
Financial professionals typically recommend at least two savings accounts — one for short-term goals such as an emergency fund and another for long-term goals like retirement.
Having multiple savings accounts — either at the same bank or different banks — will not affect your credit score. And having multiple savings accounts can simplify managing different financial goals.
If your bank charges fees for low balances, you can save money by consolidating savings accounts. This will guarantee higher balances and lower fees. It may also qualify you for lower rates on loans or higher interest on your savings account.
You should review your savings account at least once per month. Look for any signs of fraud and check the fees you’ve been charged. However, you should make more frequent spot checks to check your savings and spending to spot any surprises.
Some banks may limit how many savings accounts you can open at that bank. But there is no limit to how many savings accounts you can open at multiple banks. If your bank limits how many you can open, you can open as many as you want by using other banks or credit unions.
