Having multiple bank accounts can provide certain benefits, but also comes with some potential downsides to consider. In the opening section, we’ll provide a high-level overview of the pros and cons of having multiple accounts.
Some potential advantages of multiple accounts include:
- Separation of funds for different goals or categories of spending
- Ability to take advantage of account bonuses and rewards from different banks
- Extra protection if there are issues with one account
However, there are also some possible disadvantages such as:
- Higher minimum balance requirements to avoid fees
- More complex record-keeping to manage multiple accounts
- Potential confusion from having money spread across accounts
Whether having multiple accounts makes sense depends on your specific financial situation and money management preferences. Below, we’ll explore some of the key factors to consider when deciding if multiple accounts are right for you.
Benefits of having multiple accounts
Separation of funds
One of the biggest benefits of having multiple accounts is the ability to separate funds for different purposes. Here are some examples of how separate accounts can help organize your finances:
- Keep long-term savings for goals like retirement or a down payment in a separate high-yield savings account
- Use a dedicated account just for paying monthly bills and essential expenses
- Allocate discretionary spending money to accounts for dining, entertainment, shopping, etc.
- Have targeted savings accounts for vacations, large purchases, car repairs, etc.
With the right account structure, you can create a logical system to earmark money for short vs. long-term needs and better track your spending in each category.
Account bonuses and rewards
Opening a new bank account often comes with a bonus of a certain dollar amount when you meet the requirements, like maintaining a minimum balance for a number of months. Bank accounts may also offer ongoing rewards, like earning interest, cashback on debit card purchases, or airline miles on credit card spending.
Having accounts at multiple banks allows you to take advantage of more of these bonuses and rewards. However, you need to make sure the value of the incentives outweighs the effort of having another account.
Account protection
In the unlikely event there is fraudulent activity or other issues with one of your bank accounts, having other separate accounts can limit the disruption to your finances. Your money will still be accessible from your other accounts if you need to freeze the compromised account while the dispute is being resolved.
This account diversification can give an extra sense of security that not all your funds are tied up in one place if a problem does occur.
Potential downsides of multiple accounts
Minimum balance requirements and fees
While many checking and savings accounts are free if certain balance minimums are met, having multiple accounts means needing to maintain those minimums across all of your accounts to avoid monthly maintenance and activity fees.
For example, if the minimum to avoid a fee is $1,500 per account, then you would need $3,000 or more total between two accounts to prevent fees. Make sure you have enough funds to meet minimums before opening more accounts.
Complex record-keeping
The more accounts you have, the more effort is required to track balances, transactions, and when bills are paid from each account. Being organized is essential to avoid overdrafting accounts or missing payments due to forgetting funds were in another account.
Developing a system to access all your account statements regularly and keep a consolidated record of how much money you have can help manage your finances across multiple accounts.
Account confusion
When money is spread over too many accounts, it can be confusing to recall what amount you have in each place and remember where specific funds are located. Deciding which account to use for different expenses can also become a hassle.
Try to strike a balance between having enough separation of accounts to be useful, but not so many that you lose track of your overall finances. Keeping a detailed budget can assist with this.
Who might benefit most from multiple accounts?
While multiple accounts require more effort, certain individuals are more likely to experience the rewards outweighing the hassle. Consider if any of these fit your situation:
- Active bank account bonus churners – Opening accounts for signup bonuses can earn hundreds of dollars per year.
- Disciplined savers – Separate accounts prevents dipping into long-term savings for short-term needs.
- Planners and budgeters – Accounts earmarked for goals or expenses assists in tracking spending vs. budget.
- Higher net worth – Minimum balances are not an obstacle, account confusion is minimal with proper organization.
On the other hand, people who benefit less from multiple accounts tend to be more forgetful about money, live paycheck to paycheck, or have minimal financial literacy and planning skills.
Best practices for managing multiple accounts
If you do decide having multiple accounts fits your financial situation, here are some tips for managing them smoothly:
- Automate transfers on payday to divide funds into the proper accounts on schedule
- Give each account a purpose and name accounts accordingly (for example “Bills”, “Vacation”, “House Fund”)
- Minimize accounts you routinely withdraw from to avoid confusion choosing where to transact
- Consolidate statements to see all accounts in one place for better tracking
- Use personal finance software or spreadsheets to maintain up-to-date balances across all accounts
Proper organization and discipline goes a long way in preventing frustration when dealing with multiple accounts.
How many bank accounts should you have?
There is no magic number for how many bank accounts someone should have. It depends entirely on your specific financial situation. However, here are some guidelines for a reasonable number of accounts:
- 1-2 accounts – Best for those starting out or with minimal income and expenses
- 3-4 accounts – Allows some basic separation such as bills, variable spending, goals/savings
- 5-7 accounts – Enables more detailed categorization of money across short and long-term needs
- 8+ accounts – Typically only beneficial for wealthier individuals with very specific account roles
Regardless of how many you have, it’s critical that each account serves a defined purpose you can keep track of. Avoid opening accounts just for the sake of having more. Evaluate your budget and money management style to dictate how many accounts will be practical.
Can having multiple accounts negatively impact your credit?
Simply having more than one checking or savings account does not directly harm your credit score or report. As long as you manage the accounts responsibly by not overdrafting and making payments on time, the number of accounts itself will not cause issues.
However, there are some indirect ways having multiple accounts could negatively impact your credit:
- Applying for multiple accounts in a short timeframe can lower your credit from hard inquiries
- Missing payments if you lose track of bills being auto-debited from different accounts
- Higher credit utilization if balances are spread thinly across many accounts
- Forgetting minimum balances and incurring fees reported to credit bureaus
As long as you closely monitor your accounts and avoid these mistakes, the credit impact of multiple accounts should be minimal. Do not open excessive accounts within a few months to reduce hard inquiries.
The bottom line
Here is a summary of the key advantages and disadvantages of having multiple bank accounts:
Potential benefits
- Separation of money for different saving goals
- Ability to earn more bonuses and rewards
- Extra protection in case of issues with one account
Potential drawbacks
- Harder to meet minimum balance requirements
- More complex to manage finances and track transactions
- Confusion on where specific funds are located
Ultimately, the ideal number of accounts depends on your financial habits and skill in organizing money. Multiple accounts provide more flexibility but also require diligence. Track your spending carefully and open new accounts only when they fill a specific purpose.
Conclusion
While juggling multiple accounts does take effort, the compartmentalization and bonuses can make it worthwhile for the right individual. If you currently have only one account, first be sure you are adequately tracking expenses and saving before adding more. Open additional accounts slowly and deliberately rather than all at once.
With proper diligence and money management, multiple accounts can be a helpful tool in reaching your financial goals. Just be cautious of spreading funds too thin or opening more accounts than you have the bandwidth to monitor closely. Find the right balance for your situation.
