How Many Savings Accounts Is Too Many?

If you’re like most Americans, you learned about savings accounts from your parents. Whether they modeled responsible financial practices or were disorganized when it came to money matters, you may have picked up some of your habits from them.

Nevertheless, you’re starting to wonder about the “why” behind their approach and if you should have more than one savings account. And if you have more than one, why stop at two? What is the ideal number of savings accounts, and how many are too many?

Key Factors for Savings Accounts

Depending on your unique financial situation, you’ll want to consider each of the following factors. Weighing them against each other will help you determine the number of savings accounts you need to keep your money straight and stay secure in an uncertain world.

Investment

Historically, savings accounts were a way for people to put a little money away and get a secure return on that investment. Recently, however, the return on savings accounts has fallen drastically, often to less than 1% interest. A return this low makes it barely better than tucking the money away under the mattress, so savings accounts can’t truly be considered a way of investing your money anymore.

Accessibility

Savings accounts strike a balance between being easily accessible and inconvenient to access. The benefit of inconvenience, in this case, is that you can separate your money to make it easier to save without accidentally overspending. Meanwhile, if you have your checking and savings account at the same bank, you can always move money over when you need it without much difficulty.

Budgeting

Another common way people use savings accounts is to organize their money to budget better. For example, if you are saving up for a big expense, you may want to set aside a specific amount of money from each paycheck that you’re “allowed” to spend. If you put the rest into a savings account, then you can more easily track your expenses and ensure that you’re on track to build up the funds you need for that car, house, vacation, or other major expenditure down the line.

Common Strategies

Each family is different, and each person has different priorities at varying stages in their life. When you’re established in your career or are managing the funds for an entire household, the way you manage your money truly has a large impact on your overall quality of life. Depending on these priorities, there are several ways that people will arrange their savings accounts.

Checking, Savings, and Retirement

One basic approach is to have a single checking account, savings account, and retirement account. This is suitable for single-income earners, especially unmarried individuals who don’t have children. Such people will often put away a portion of their income into savings and retirement, respectively, with the remaining portion going into the checking account to take care of regular expenses. Without a particular goal in mind, splitting pay 80% to checking, 10% to savings, and 10% to retirement will ensure that the savings account can be used for large, unexpected expenses such as a new car or appliance repairs. The 10% share put into retirement can remain untouched and be there for the long term as an investment strategy.

Dual Savings Accounts

If you have more than one savings account, you can treat one as your “rainy day” fund while using the other for discretionary spending. This way, you can save up for a down payment on a home or new car or perhaps pay for a vacation without picking up any high-interest credit card debt. Another consideration is that freelancers and those who receive 1099 tax statements will usually have to pay taxes each year. Separate savings accounts just for that purpose can prevent you from getting caught off-guard and having to assemble several thousand dollars at the beginning of the year just to pay for what you earned last year.

Plus One Savings Account

Many families run into trouble by being on different pages regarding how they use their money. A good compromise that avoids many fights is to have separate savings accounts for each partner, then one for the family. For example, a husband and wife would share a savings account for family expenses, but each would also have their own savings account to use for “play money,” such as hobbies and meeting up with friends. Keeping this money separate and having a pre-determined amount that goes into each can allow them to use the money guilt-free because they’re never using money their partner would be counting on.

Potential Drawbacks

Regardless of how many savings accounts you have, there’s always a downside. If you have a single account, it’s easy to neglect the “savings” part of the name and overspend money that you should be saving. If you have multiple accounts, it can be hard to appropriately keep track of your finances, and it will require more of your time. If you have multiple accounts at the same financial institution, it can be too easy to transfer funds between them, defeating the purpose of having more than one in the first place. On the other hand, having your accounts at different banks can make it hard to transfer money to another account when an emergency does arise. Of course, you could open as many savings accounts as you’d like, but if you get past three or four, you may very quickly find that it’s difficult to keep track of where your money is at any given point.

Your situation is unique, so take some time and consult the people in your life who are affected by how you manage money. Determine what your goals are and what kind of budgeter you are (or aren’t), then choose a strategy that will help you achieve your goals without making your day-to-day life more of a struggle. Whether you have a single savings account or multiple accounts, commit to your strategy until it becomes a habit. Once you have a clear vision of how your finances work, you’ll quickly see the rewards of better organization.