There’s No Question You Need Multiple Bank Accounts — But How Many, And Which Ones?

November 24, 2020

Virtually every financial advisor agrees that effectively managing your money means managing more than one bank account. But debate still surrounds several critical questions.

  • Exactly how many bank accounts do you need?
  • Which bank accounts are must-haves, and which are optional?
  • Should you trust more than one bank with your money?
  • What’s the best way to keep track of the cash you have distributed across multiple accounts?

One short answer is an appropriate response to all of these questions: “It depends.” For example, and as the old saying goes, simple is beautiful. Keeping tabs on multiple bank accounts — and the multiple account numbers, routing numbers, logins, and passwords that go along with them — can be a chore. On the other hand, minimalism is far from a one-size-fits-all solution. An approach to financial management designed for a recent college graduate won’t necessarily work for a couple raising children or their retired parents.

Keep reading for answers to some of the most common questions our bankers receive about opening, monitoring, and otherwise getting the most out of multiple bank accounts.

Why should I have multiple bank accounts?

There are three main reasons why you might want to maintain multiple bank accounts.

1) Everyone has different financial needs and goals. A bank account without a purpose behind it is not a bank account worth opening. With that in mind, you should have at least two bank accounts:

  1. A checking account you can use to cover your living expenses.
  2. A savings account that you can draw funds from in case of an emergency.

However, you might want to go beyond these basics and consider opening two checking accounts. You could use the first checking account to pay your most expensive monthly bills, such as your mortgage or rent. You could use the second checking account to pay for goods and services — groceries, minor household incidentals, entertainment and leisure activities, etc. Depending on your circumstances, maintaining accounts dedicated to each category of expense may be the best way to preserve your liquidity while ensuring your financial stability and security.

Meanwhile, you would use your savings account funds to pay only for the unexpected, such as vehicle repairs or a trip to the emergency room. Although a true emergency fund should contain enough cash to cover three to six months’ worth of living expenses, you might benefit from setting up a separate savings account — one that earns more interest — for that purpose. You may also want to open what could be called a dream savings account: one in which you put aside funds for a big future purchase, such as the down payment on a house or that vacation you’ve always wanted to take.

Of course, your financial needs and goals will change as you continue on life’s journey. Take the three customers we mentioned earlier. A typical young adult, such as a recent college graduate embarking on their career, might need only two accounts: checking and savings.

Meanwhile, most married couples will want to open a joint savings account, a joint checking account for their major recurring expenses, and separate checking accounts for their daily expenses. They might also want to open an additional savings account to achieve their long-term goals, such as paying for their children’s college education.

Finally, retirees who are downsizing or living in scale-back mode might only need two accounts: a joint savings account containing a three- to six-month cash reserve and a joint checking account.

2) Multiple bank accounts give you access to multiple perks. Banks and credit unions must compete for business. That means they are willing to offer incentives to new customers, such as bonuses for opening accounts. Additionally, although one bank may score high marks for convenience — for example, with multiple locations and surcharge-free ATMs available near both your home and workplace — you may find a higher savings interest rate at a different institution. A third bank may provide exceptional customer service. Just as you would ask yourself, “What is the purpose of this account?” ask yourself, “What do I really want from my financial services provider?” Choose accordingly. And remember: you can always close an account if it doesn’t meet your expectations.

3) There’s an upper limit to how much money you want to keep in any one account. The Federal Depositors Insurance Corporation (FDIC) and the National Credit Union Association (NCUA) are federal agencies that insure individual deposits up to $250,000. If your bank balances exceed this limit, distribute that money across multiple accounts. Moreover, although the FDIC and NCUA will reimburse you in the unlikely event that your bank or credit union fails, that process can take months. You can shield yourself from these risks by maintaining multiple accounts – each one with a balance lower than $250,000 — at different financial institutions.

Does having multiple bank accounts hurt my credit score?

No. Activity related to your checking and savings accounts does not show up directly on your credit report, nor is it reflected in your credit score. However, if you are applying for a loan, lenders will calculate your net worth, a figure which includes both your income and your bank assets (among other factors). From a lender’s point-of-view, your net worth is a primary indicator of your ability to repay your debts.

If I don’t write checks, do I actually need a checking account?

Despite the availability of debit cards, credit cards, and mobile payment options, a checking account still has an important role to play in your personal finances. That’s because “checking account” is something of an anachronism. At one time, writing a paper check was the easiest and most reliable way to transfer money from one bank account to another. As noted, checking accounts still provide that liquidity, but account holders now move funds from these accounts mainly via electronic means, such as automatic drafts.

That said, some service providers still prefer checks to credit cards. Local small businesses and sole proprietorships — a handyman or certified public accountant, for example — may not be able to accept credit cards. They may also wish to avoid paying the processing fees associated with credit card transactions. Checks, whether issued in paper or electronic form, do not incur these fees. Furthermore, if you don’t have reliable internet access, paying your bills by check maybe your best option. Finally, learning how to balance a checkbook is a good exercise that can help improve your financial literacy.

Which accounts do I need if I want to use cash round-ups to grow my savings?

To take advantage of Guaranty Bank & Trust’s free Cash RoundUp service, you will need to have both a checking (or debit card) and savings (or money market) account with us. Each time you use your Guaranty debit card, we’ll round the amount you spend up to the nearest dollar. We’ll sum these round-ups at the end of each day and electronically transfer that total from your checking to your savings or money-market account.

For example, if you spend $25.50 to fill up your gas tank, your round-up — again, the difference between your spend (or payment) and the next highest round dollar amount — would be 50 cents. If you then spend $7.75 for lunch, your rounded-up total would be $8.00. We would then withdraw 75 cents (50 cents plus 25 cents) from your checking account and deposit it in your savings or money market account at the end of the business day.

Think of these round-ups as micro-investments. You are unlikely to see a significant difference in your checking account balance from day to day due to these automatic round-ups and transfers. But you will gradually accrue savings, building your principal and therefore growing your interest-earning potential.

Is a money market account a checking or a savings account — and do I need one if I already have checking and savings accounts?

A money-market account is a special category of savings account that traditionally offers a higher interest rate than its traditional counterparts. For your convenience, these accounts come with checks and a debit card. However, you may only make a limited amount of withdrawals, either via check or debit card swipe, each statement cycle. Per the provisions of Federal Reserve Regulation D, money market accounts holders are limited to six such transactions per statement cycle.

Many money market accounts require higher minimum opening balances than savings accounts. Your bank may also impose a fee if your money market account balance falls below a specific dollar amount during a statement cycle. That said, a money market account may be a good candidate for your emergency fund for the following reasons.

  • Your limited check-writing and debit-card privileges discourage overspending.
  • Although money market interest rates are variable, they tend to be relatively stable.
  • The more you save, the more you earn thanks to compound interest. This passive income helps your emergency fund grow more quickly than it would in a traditional savings account.

What’s considered a good savings interest rate these days?

Most banks will pay you interest for entrusting them with your money. Even though banks look to the Federal Reserve for guidance on setting these interest rates, they can change the rates they offer their customers at any time and based on local economic conditions. Partly because the Federal Reserve has set their prime rate (also known as the federal funds rate) at a historically low 0.25 percent, the current national average for savings accounts is 0.05 percent, or 0.05 APY (annual percentage yield).

Moreover, many banks also charge monthly fees on savings accounts if you fail to maintain a minimum balance. These fees can reduce your principal and, by extension, the amount of interest you earn.

If you’re looking for a fixed interest rate and don’t anticipate having to withdraw your money in the near future, consider investing in a certificate of deposit (CD).

What are the pros and cons of putting money in a CD?

Think of a CD as a safe haven. In exchange for near-term liquidity, you receive a guaranteed rate of return on your savings. Moreover, unlike investment accounts such as mutual funds, CDs — which are bank products — are typically insured by the FDIC (or NCUA). For these reasons, CDs can be a very worthwhile investment for risk-averse individuals eager to earn more interest than they could by placing their money in either a savings or money market account.

But locking up funds the months or years it takes for a CD to mature isn’t necessarily for everyone. If you are interested in exploring the benefits of CDs, you might start by laddering several smaller investments. Using this approach, you invest in a series of CDs with different maturity dates, varying from a few months to several years. As each CD matures, your cash will free up for personal use — or you can roll the funds over into a new CD.

However, before investing in any CD, ask your bank or financial services provider if you will have to pay a penalty for any early withdrawals. Again, a CD ladder can help you minimize the impact of these penalties in case you do need access to your cash sooner rather than later.

How can I avoid paying service fees if I have multiple accounts open with several banks?

There’s no question that the more bank accounts you have, the more you expose yourself to incurring banking fees. However, as long as you follow these best practices, you should be able to prevent fees from causing your personal wealth to depreciate.

  • Read the fine print. Know in advance what will trigger a fee. If you are concerned about living up to the terms and conditions of the account, consider searching for an alternative.
  • Look for banks that offer fee-free checking and savings accounts.
  • Have your paycheck deposited electronically to your account? Many banks will waive checking account fees if you sign up for direct deposit.
  • Set an alert to prevent your account from falling below its minimum balance requirement. Use your bank’s online and/or mobile notification system to make sure you keep the minimum balance required in your account to avoid fees and accidental overdrafts.
  • Keep multiple accounts at a single bank. Many banks value the relationships they cultivate with their customers. Such banks may offer loyalty-based rewards, such as free services to customers who maintain both a savings and checking account with them.
  • Use only your bank’s ATM. If at all possible, only use ATMs owned by or affiliated with your bank. Doing so helps you avoid unnecessary ATM usage fees and surcharges.

Given the need for multiple accounts, what’s the best way to manage them all?

It’s a given that most of us need help in maintaining multiple accounts, especially if we are doing business regularly with more than one bank. Fortunately, modern technology has come to our assistance. You can now choose from an abundance of software applications that can link all your bank and investment accounts and give you an excellent top-down understanding of your financial position. Many of these tools are also free to use. However, do note that many of these apps are third-party solutions. They are not affiliated with your bank or banks and will require you to submit your account information in order to function properly.

If you are a Guaranty Bank & Trust customer, we encourage you to learn how you can manage your money more effectively using the electronic tools available via our Bank Anywhere services. If you’re not a current Guaranty Bank & Trust customer, we encourage you to get to know us. We operate 30 locations across the Lone Star State and have over 100 years of experience helping Texans achieve their financial goals. Call our Customer Care Center at 888-572-9881 or book an appointment to speak to one of our friendly financial experts today.

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