The trick is to find that sweet spot: How many ballsâ€¦ or in this case, bank accounts should you juggle? While thereâ€™s no one-size-fits-all approach to money management, hereâ€™s some advice on figuring out the right number of bank accounts for your needs.
When it comes to deposit accounts, you have a few different options to choose from. Each has its own purpose, pros and cons. Here are some accounts to consider:
Checking Accounts:Checking accounts are typically used for daily spending, like debit card transactions, online bill payments and checks. Interest rates on checking accounts tend to be low or nonexistent.
Savings Accounts:Savings accounts are considered a safe place to store money for a goal or an emergency. There is a limit of six withdrawals per statement cycle. Savings accounts usually offer higher interest rates than checking accounts.
Certificate of Deposits (CDs):CDs are a place to stash away money for a set period of time, anywhere from three months to several years. The interest rates are typically higher than checking and savings accounts, but you may pay a penalty if you withdraw your money before the CD term ends.
Money Market Accounts: This type of account allows customers to make between three and six transfers, debit card payments or check payments each month. Money market accounts may have higher interest rates than traditional checking and savings accounts.
If you have one of each of the main basic deposit account options, then the easy answer would be three or four accounts is the ideal number of bank accounts to have. That way, youâ€™re maximizing the cash you have on hand so youâ€™re not missing out on potentially more flexibility or higher returns. You can keep cash for day-to-day spending in checking, put a healthy amount of savings in your savings account for emergencies or short-term financial goals, and sock away additional savings in a CD. Consider a money market as an alternative to savings if you can find one that offers a really competitive rate.
â€śItâ€™s important to have the basics. I recommend having a checking account and perhaps a money market fund or a CD, depending on which pays a higher interest rate,â€ť said Lou Stanasolovich, a Certified Financial Planner and president of Legend Financial Advisors, Inc..
That combination of accounts would give you the ability to deposit paychecks (or receive direct deposits), pay bills, make transactions and earn interest on your rainy day fund.
There are many compelling reasons to open additional accounts. Perhaps you have a daughter whoâ€™s heading off to college and you need an easy way to give her money for books and food, so you decide to open a joint checking account. Or maybe youâ€™d like to save up for a dream vacation and you want to separate your travel fund from your general savings â€” a new savings account might make sense for you.
Personal finance is, well, personal. Strive to strike a balance between having enough bank accounts for your needs and goals, but not so many that it makes managing your finances a headache. Only you can decide what the right number of bank accounts is for your life.
Here are a few reasons opening several accounts can make sense:
Keeping the number of accounts you have open to the bare minimum can make it easier to track your finances, so think carefully before you go on a deposit account shopping spree.
â€śWhen youâ€™ve got money in multiple places, it can become a management problem and money starts getting ignored,â€ť warned Stanasolovich.
When it comes to the ideal number of bank accounts, thereâ€™s no one right answer. Regularly review the number and types of accounts you have to make sure theyâ€™re serving your financial goals, and donâ€™t be afraid to switch banks or open a new account when the situation calls for it.