5 reasons to have multiple savings accounts

Many consumers assume they only need one savings account to meet their needs, but that isn’t always the case. Having multiple accounts — at the same bank or different banks — can be useful for managing different savings goals, and there’s little harm in doing so, since it doesn’t impact your credit.

“Having multiple accounts can be a way to keep yourself on task with the specific goals you’re saving for, without the risk of funds getting commingled,” says Greg McBride, CFA, Bankrate chief financial analyst.

Spreading your savings across multiple accounts can also help ensure all your deposits are protected under insurance limits set by the Federal Deposit Insurance Corp. (FDIC) and the National Credit Union Administration (NCUA). There are several ways in which having multiple savings accounts can help make managing your personal finances easier.

How many bank accounts should you have?

In short, the amount of savings accounts that’s right for you depends on your personal finances. Someone with a lot of money may want to open multiple bank accounts to ensure that all of their wealth is federally insured.

Another factor to consider is how many savings goals you have, since you may want to have an account for each major goal or group different types of savings goals into distinct accounts.

However, if FDIC insurance limits aren’t a concern, it’s not always necessary to have separate savings accounts for every goal.

“I tend to recommend high-yield savings accounts at places like Ally that allow for ‘buckets’ or categorization of savings,” says Jay Zigmont, PhD, CFP, founder of Childfree Wealth.

In that case, you could keep all your goals in one account with separate categories or group savings goals into a couple of accounts.

Finally, it might be worth having additional savings accounts if you’re in a committed relationship. “If spouses or partners handle finances separately, that might be another reason for multiple savings accounts, shared or individual,” says Tim Melia, CFP, MBA, founder of Seattle-based Embolden Financial Planning.

Reasons for having multiple accounts

There are several reasons why it is beneficial to have multiple savings accounts.

1. Earn more interest

With the Federal Reserve actively making cuts to the federal funds rate, now is a good time to consider multiple accounts. Today, the best savings accounts (many of which are online accounts) can still reach a 5 percent annual percentage yield (APY) for impressive returns on your balance.

One way to earn the highest rate is to have multiple accounts open with different banks. That portfolio of accounts can include not only big, traditional banks but also higher-paying online-only banks. Then, as rates change, money in the accounts can be moved accordingly to get the best yield on the highest balance. As a short-term investment strategy, having multiple accounts can help you build up your savings faster.

It’s also useful to have short-term savings in a high-yield account, while placing long-term savings, such as a home down payment, in a CD.

2. Track your savings progress

Having one savings account while saving for multiple goals can make it difficult to keep track of priorities. For example, if your emergency fund and travel fund live in the same account, it can be tempting to raid your emergency savings in exchange for a few extra days at the beach.

A single savings account can also make it harder to see how much you’ve set aside for individual goals while targeted savings accounts can put those goals in focus. Some banks, such as Ally, enable customers to have segmented savings within a single savings account, known as buckets, instead of creating a new account for each goal.

You might want separate savings accounts for different goals, such as:

• Buying a car
• Going on vacation
• Emergency fund

With a savings account designated for each major goal, it’s easier to monitor spending patterns and achieve those goals. Separate accounts can help create boundaries, too.

“It’s a big red stop sign that says: Do not touch unless it’s for this specific purpose,” says Ryan Frailich, CFP, CSLP, and founder of Deliberate Finances.

Frailich recommends assigning a nickname to each account you open. Most banks and credit unions give you the option to change the account name from its generic label to something more specific.

“If you set up a gift fund for your kids and grandkids, and it says ‘Christmas gifts’ on it, you are a lot less likely to tap that money than you would be if it just said ‘savings account,’” he says.

You might consider putting some of those savings for goals into high-yield savings accounts, which can help supplement the money you put away.

3. Increase spending awareness

If you have one savings account with a lump of money sitting in it, it’s all too easy to feel the temptation to spend it. Having all your money in one place also makes it easier to spend because the funds can be moved to a checking account with a single bank transfer.

When your savings balance is split between multiple accounts, the balance won’t appear as one large sum, and you can have a better idea of what funds are off limits from spending. That can give you a clearer picture of your spending and savings priorities.

Having multiple accounts also adds barriers to spending your money, especially if those accounts are kept at separate banks. Before you can spend the money, you’ll need to transfer it to a checking account, and that transfer may take a few days to complete if done between separate banks.

Adding these additional steps can make it easier to avoid giving in to the desire to spend your savings. However, it’s a good idea to keep a small emergency savings fund at the same bank as your checking account. There are times when you might need quick access to cash, and a delay of two to three business days for funds transfer could pose problems.

4. Take advantage of available bonuses

One common strategy that banks use to draw in new customers is to offer bonuses to consumers who open new accounts.

Usually, to earn a bonus from a savings account, you need to open an account and maintain a certain balance for a period of time. These bonuses can be worth hundreds of dollars, so they’re worth considering if you have enough money to set aside. Opening savings accounts at multiple banks gives you the opportunity to earn more than one of these bonuses, and that bonus money can go toward your savings goals.

Just be sure to read the fine print to see if you’re eligible for a bank bonus. Often, bonuses are only available to new customers with the bank, so you likely wouldn’t be eligible if you already have a checking account with the bank, for example.

Also, keep in mind that you’ll owe taxes on the bonuses earned. You should receive a 1099-MISC tax form from your bank at the end of the year.

5. Keep your money insured

One of the things that makes a savings account one of the best places to store extra cash is insurance from the FDIC. The FDIC offers up to $250,000 in insurance, per depositor, per account type, at covered banks. If you have more than $250,000 in your bank accounts, any money over that amount could be at risk if your bank fails. However, splitting your balance between savings accounts at different banks ensures that excess deposits are kept safe, since each bank has its own insurance limit.

For instance, if you have $300,000 in a savings account at one bank, $50,000 of your balance isn’t protected. If you instead put $150,000 into savings accounts at two different banks, your full balance will be insured.

Alternatively, you could keep excess deposits in accounts with different ownership categories. Jointly owned accounts come with an additional $250,000 insured per owner, separate from single accounts.

Finally, you could split your savings between banks and credit unions. Savings accounts at credit unions are insured by the NCUA, up to the same limits as banks. Credit unions are member-owned and often come with low fees and competitive yields.

What to watch for before opening multiple accounts

It’s important to do your research before opening a new account. These are some things to consider.

• Minimum balance requirement: Just because there’s an attractive yield advertised doesn’t necessarily mean it’s a good fit. In some cases, you might need to meet a minimum balance requirement to get the highest yield. If your savings balance is split between multiple accounts, it could be harder to meet that minimum.
• Bank fees: There are also bank fees that apply. Savings accounts sometimes come with a monthly service fee. You may need a minimum balance or meet another requirement to waive that fee, so make sure you can meet the requirements to avoid racking up high costs in fees.
• Transaction fees: Another fee to consider is an excess transaction fee. Some banks limit withdrawals from savings accounts to six per month, and there could be a fee if you exceed that limit. That’s a potential risk of having multiple savings accounts, since you may find yourself transferring money frequently between them.

Your savings account could be converted to a checking account if you make frequent transactions. New regulations mean that banks and credit unions no longer have to maintain withdrawal limits on savings accounts, but you’ll want to check with your bank to be sure.

How to manage multiple savings accounts

With multiple accounts to manage, it requires a bit more work to stay on top of each account’s balance, fees and earnings.

One way to simplify managing accounts is to focus on fee-free accounts, which saves you the stress of having to remember each account’s monthly fees or minimum balance requirements. A spreadsheet is a useful tool for organizing all of your accounts’ information. Whenever you open a new account, add it to the spreadsheet so you have a single place where you can keep an eye on all your financial accounts.

There are also numerous personal finance apps that can help you track and build your savings. Your own bank’s app might even allow you to link external accounts to it so you can track all of your finances in one place.

Frequently asked questions

• How do you build your savings?

  Building your savings involves setting clear financial goals, creating a budget that includes regular savings contributions, and sticking to your plan. It can also be helpful to automate your savings contributions and to put any extra money—like bonuses, tax refunds, or raises—directly into savings. If you have multiple savings accounts, you might choose to dedicate each one to a different goal, which can make it easier to track your progress.

• Does having multiple savings accounts affect your credit score?

  No, having multiple savings accounts doesn’t directly affect your credit score. Savings accounts aren’t reported to credit bureaus and don’t appear on your credit report. However, certain activities related to savings accounts could impact your credit. For example, if a bank performs a hard credit check when you apply to open an account, it could temporarily lower your credit score by a few points. Additionally, if your savings account goes into negative balance and you don’t pay the amount owed, the bank could send the account to collections, which would negatively affect your credit.

–Freelance writer Lena Borrelli and Bankrate’s Sheiresa McRae Ngo contributed to updating this article.