If you have ever asked yourself “How many bank accounts should I have?” Or find it hard to handle your money in general, you are not alone.
According to a 2017 Public Survey, almost 8 in 10 Americans now live paycheck to paycheck. Luckily, there are lots of things you can do to better your situation and alleviate this fiscal stress.
How Many Bank Accounts Should I Have?
Among the simplest ways to relieve financial stress is to start multiple bank accounts and use them accordingly. It is perfectly acceptable to have a number of bank accounts for budgeting. However, how many bank accounts are sufficient, and how many is too many?
The reply to the number of bank accounts you should have depends on your personal situation. Most people are fine with only a couple of bank accounts initially. Let us discuss what those balances are and how to use them.
Most everybody knows they want at least a checking account to maintain their money for daily use. Single people and married couples who handle their finances jointly may just require one checking account.
Can I have 2 Bank Accounts?
Some married couples, however, find that dividing their financing up into three different checking accounts — mine, yours, and ours — works best for them. If one partner is a spender and the other is a saver, this may be a fantastic solution.
Naturally, it then requires both partners to handle their checking accounts independently. One or both spouses will also need to handle the joint checking account to cover shared bills like utilities, rent/mortgage, etc.. This account arrangement adds new complexity to the circumstance, but for some individuals, the advantages outweigh the drawbacks.
Open A Saving Account:
Savings accounts generally offer you a whole lot of helpful advantages that are custom-designed for your job. By way of instance, savings accounts offer higher rates of interest and have limits on how many times it is possible to withdraw money. Maintaining your savings separate from the spending money (i.e. your checking account) also ensures that you don’t accidentally spend your money on impulse purchases.
Most of us have at least one savings account also. But if you are living paycheck to paycheck, go into debt often, or would just like to plan things better, you may discover that opening many savings accounts for various functions works best for you. This is referred to as the”bucket” savings plan. Most banks and credit unions will allow you to open multiple savings account to achieve this.
Open An Emergency Fund Account:
A lot of folks find it helpful to maintain a separate savings account specifically for an emergency fund. This money is for occasions like unexpected car repairs, job loss, or emergency hospital visits. It is like a fire extinguisher in a glass case: you simply break the glass (i.e. draw the cash ) in a genuine emergency.
If your emergency fund is mingled in with your savings to different accounts, you risk accidentally withdrawing the money. Because of this, you could end up in a sticky situation when a real emergency arises.
Short-Term Savings Accounts:
Lots of individuals also find it beneficial to prepare separate savings to account for short-term savings goals like a holiday, holiday shopping, or healthcare expenses. Some folks refer to those mini-savings accounts as”sinking funds.”
Again, separating these economies guarantees you don’t inadvertently use them for the wrong purpose. It would be a pity to conserve money for a wonderful vacation just to find you spent the money on something else and no longer had the money to buy your tickets.
Accounts for Investing:
It’s also recommended to have investment accounts for your future, like for retirement or a house down payment. Contrary to an emergency fund, these are planned expenses which will come to pass. However, they are still years in the future.
These investment balances generally allow your money to grow to a much greater value with time. On the other hand, they are not insured, and there is also the risk you will lose a lot of money.
That’s why plenty of people would rather maintain their investments in a bank account where it earns a smaller (but guaranteed) speed and is guaranteed. There is no wrong or right answer, and we invite you to speak with a financial adviser for these huge life decisions.
Certificates of Deposit (CDs, or”Share Certificates” at credit unions) are timed deposit balances. When you start a CD, you deposit a fixed sum of money in your accounts, typically $500 to $1,000 or more.
Certificates of Deposit:
You agree to hold that money in the account for a specified time period, which ranges from a few months to many decades. During that time, you are not permitted to withdraw or get the money in your accounts. If you do, you will be charged a penalty.
As soon as your CD matures, you will get your initial deposit plus the interest earned on your accounts. CDs generally offer higher rates of interest than any other account type at a bank or credit union.
Due to the timed deposit attribute and higher rates of interest, these accounts are particularly great if you currently have lots of money which won’t need until a later date.
Money Market Accounts:
Money market accounts work similarly to savings accounts.
Unlike a CD, you can withdraw money from the money market account when you want as long as you remain under the monthly withdrawal limitations. The rates of interest on these accounts are usually between that of a regular savings account and a CD account.
These accounts are particularly good when you’ve got a higher dollar amount to save but still might want to access it at any time. For those who have a large emergency fund, a money market account can be a wonderful place to save it.
Other Investment Accounts
Some banks and credit unions also provide traditional investment accounts as well as the equity investments mentioned previously. These can be great ways to cultivate your long-term savings like your retirement funds.
Banks and credit unions may charge a greater commission than working directly with a broker such as Vanguard or Fidelity.
If you are using these investment accounts to supplement your retirement savings, it is usually sufficient to have only one Traditional IRA or a Roth IRA account. If you are self-employed, you might also have the ability to select from other retirement savings account, like a SEP IRA or a Solo 401(k).
How Many Bank Accounts Should I Have?
There’s absolutely no perfect answer for everybody. How many bank accounts you should have depends on your personal situation and your financial targets.
Most men and women prefer three bank accounts in a minimum: a checking account, a savings account, and an account for retirement savings (although this may be held in a broker instead).
In practice, most individuals are better served with this minimal three-account setup and at least a few added savings accounts for short-term and long-term savings goals. Married couples who find it tough to handle money together may also wish to keep an individual checking account.
Assessing your number of accounts can allow you to keep organized and manage your money with confidence.