Although it is very recommended to have multiple accounts of saving, still there are advantages also disadvantages referring to this idea.
Advantages of Having Multiple Savings Accounts
Having multiple savings accounts can yield some advantages. If you’re on the fence about whether you should open multiple savings accounts, here are the best reasons to consider doing so.
It’s Easier to Monitor Your Savings Progress
This has already been mentioned, but it’s worth repeating: Having multiple savings accounts makes it easy to see at a glance how well you’re doing with your savings goals. If you check your account balances and see that you’re behind on a particular goal, you can brainstorm ways to get caught up.
You Could Take Advantage of Higher Interest Rates
When adding money to a savings account, the interest rate matters because it determines how quickly your money can grow. Not all savings accounts are equal when it comes to interest rates and the corresponding annual percentage yield (APY) they earn.
Spreading your money out across different savings accounts from various banks could help you take advantage of higher interest rates. For example, your brick-and-mortar bank may pay a lower APY for a regular savings account versus a high-yield savings account at an online bank.
You May Be Able to Cash In on New Bank Account Bonuses
Some banks offer incentives to encourage people to open new savings accounts. For example, you may collect a $150 cash bonus for opening a savings account and making a minimum number of deposits within the first three to six months.
These bonuses can be a nice way to grow your savings without any extra effort on your part. But banks can impose a rule that you can only nab one bonus per customer. Opening multiple savings accounts at different banks offers a work-around so you may qualify to earn multiple new account bonuses.
You Can Protect Your Cash If You’re a Super Saver
FDIC insurance coverage protects your savings accounts and other bank accounts, but only up to certain limits. That current limit is $250,000 per depositor, per insured bank, per ownership category, across all your accounts.
If you’re a super saver who has more than $250,000 total across your various savings accounts, opening multiple accounts at different banks could make sense. You could continue earning interest on savings while staying within the FDIC coverage limits at each bank.
Disadvantages of Having Multiple Savings Accounts
Now that you know the benefits of having multiple savings accounts, there are a few downsides to keep in mind.
Multiple Accounts Can Be Difficult to Keep Track Of
Unless you’re an organized person, having multiple savings accounts could quickly get confusing. It can be especially tricky if each account is at a different bank.
Using a mobile budgeting app that allows you to sync your various accounts could make keeping tabs on them more manageable. But if you’re trying to schedule an automatic deposit or electronic withdrawals, things could still get tricky.
It May Trigger Fees
Bank fees can nibble away at the interest you earn on your savings. One important fee to watch out for with savings accounts is a minimum balance fee.
Banks can charge a minimum balance fee if your account falls below a certain amount. If you’re not able to meet the minimum balance requirements for each of your savings accounts, you could easily incur a pile of fees each month.
Also, make sure to consider excess withdrawal fees. If you’re frequently withdrawing money from savings, your bank could charge you one or more excess withdrawal fees, which could drain your cash reserves.
You Could Lose Out on Higher Interest Rates
Opening multiple savings accounts can help you earn more interest, but it’s important to read the fine print. Some banks have a tiered interest rate structure for savings accounts, meaning you may only earn the highest rates once your balance reaches a certain amount.
If you’re saving in multiple accounts with tiered rates, it may take time to work up to the minimum threshold for each one to earn the highest APY. And if your balance dips below that threshold at any time, your rate may revert to a lower one.
Which Types of Savings Accounts Are Best?
One last thing to consider when setting up multiple savings accounts is which ones to use as part of your savings plan. As Forbes states you could open any of the following:
- Regular savings account at a traditional bank
- High-yield savings account at an online bank
- Christmas Club or other specialty savings account
- Regular money market savings account
- High-yield money market savings account
You can use all of these to fund your savings goals. In terms of which savings account option is best, it typically comes down to things like the fees the bank charges, the interest rate the bank pays, and the minimum balance requirements. Getting the highest rate with the lowest fees may be the best combination for utilizing more than one savings account.
Also, keep in mind how you’ll access your savings to make withdrawals or deposits. If you mostly bank using mobile apps or online banking, an online bank can offer everything you need.
On the other hand, if you routinely need to deposit cash or prefer depositing money with a teller, you may want to have at least one savings account at a brick-and-mortar bank or credit union.
Finally, remember to review your savings accounts consistently to make sure they still fit your needs. If you find that the fees have crept up or the bank has slashed the interest rate they’re paying on savings, you may want to shop around for a new account elsewhere.
