When to open multiple bank accounts – Forbes Advisor
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Depending on your financial goals, you may find that it makes sense to have more than one bank account. Having multiple bank accounts can allow you to have constant access to the money you need for your daily expenses while taking advantage of the best interest rates available on the market.
The key, of course, is figuring out which combination of accounts fits your financial goals and lifestyle perfectly. More isn’t always better, as there is always the time-consuming end-of-month account reconciliation, the more accounts you have.
There are, however, ways to help you determine which bank account combinations will give you the access you need to immediate cash while helping you get the most out of your reserve funds.
First, start by checking
Your current account acts as the gateway to your monthly finances. This is the account you will deposit your paycheck directly into, and you will use the debit card from that account as your primary means of paying for your daily expenses.
Your daily checking account can bring you benefits for your day-to-day expenses. With a wide array of banks competing for your business, you have the luxury of choosing between the benefits of brick and mortar banks with local locations near you and online banks.
Make sure your main checking account has perks like mobile and online banking, low opening balance requirement, and manageable monthly fees. Many banks waive monthly account fees when you use direct deposit for your salary or keep a minimum balance. Many online banks offer extensive benefits for their checking accounts, such as reimbursement of ATM fees, waiver of overdraft fees and more.
The most important thing about your main checking account is that it keeps the money you need most throughout the month at your fingertips.
Next, consider an additional checking account to meet specific financial goals.
Why a secondary checking account might be suitable
Adding a second checking account to your financial mix might be the last thing on your to-do list, but it makes sense in a few specific situations like tracking business income and expenses and access you need to your money.
Since 2019, 41.8 million Americans identify yourself as consultants, freelancers or solopreneurs. Whether you’re a solo entrepreneur or a thriving small business owner, separating your personal and business finances makes accounting and taxes easier. A second separate checking account can make all the difference.
Even if you are a sole proprietor, you can use a separate checking account to receive your business-related payments and pay for your business expenses. Using a separate checking account can also make it easier to pay your estimated quarterly taxes, as you’ll have a clear picture of your business income and expenses through one account.
Adding a second checking account can also help you budget by recording your business expenses separately from your personal expenses. You may need to budget that explains fluctuations in your business income, especially when you are self-employed. By logging into a single account and looking at expenses related to your business, you can also quickly determine where you may need to reduce or change expenses during months when income is declining.
If you’re worried about having access to your money all the time, you’re not alone. On April 15, as stimulus checks began to land in bank accounts across the United States, many banks reported temporary outages and service disruptions. A secondary checking account linked to your main checking account can help protect you against technology and allow you to systematically access your money until your main bank is back online.
Add a savings account
With all the talk about checking accounts, you can’t forget your fund for a rainy day. A savings account is an essential part of a good financial strategy.
While many checking accounts don’t earn interest, savings accounts do and they let your money work for you while you live your life. You can choose a savings account at the same bank as your main checking account or explore the many online savings accounts available. Online savings accounts often offer much higher interest rates than accounts offered by traditional banks, making them a good choice for increasing your savings.
You can choose to have more than one savings account for this reason alone, to make it easier to move your money from one low interest account to another with a higher return. Still, when exploring an additional savings account to take advantage of the higher returns offered by online banking, don’t forget the downsides.
Many online banks are overdue, which means that the transfer of money between banks will not be immediate. Transferring funds from an online savings account at another bank to your main checking account can take up to three business days. You will probably want to keep your emergency savings in a savings account with little or no transfer delay to your main checking account, maybe even at the same institution. You can then use your secondary savings account for cash reserves beyond your rainy day threshold.
Having multiple savings accounts can also help you save for specific goals. Many banks offer branded savings accounts like the “Holiday Saver” and Christmas themed accounts to help you put money aside throughout the year outside of your savings. emergency. You’ll want to be careful about the rates offered on these specialty accounts to make sure you get the most out of your money, as an online savings account at another institution can generate a significantly higher return.
Add a money market or cash management account
If you’re frustrated that the funds in your checking account don’t earn interest, you may want to consider adding a money market or cash management account to your finances.
One of the downsides of many checking checking accounts is that they do not bear interest, but money market and cash management accounts give you both check and debit card privileges as well as payment for money. interest on your funds. The two accounts have notable differences, so it’s best to know how each works in order to determine which one is best for your finances.
Money market accounts
Money market accounts generally have higher balance requirements in order to be eligible for the attractive interest rates offered. While a typical checking account may not earn interest at all, you could earn well over 1% or more on your funds in a money market account if you reach the minimum balance. A money market account may be suitable if you currently have more than $ 5,000 in your checking or savings account. Money market account holders with even higher balances ($ 25,000 or more) can take advantage of even higher interest rates.
Cash management accounts
Cash management accounts are typically offered through online brokerage firms and work much like a checking account. You will have check and debit card writing privileges and unlimited transactions each month like a checking account. Cash management accounts can come with a variety of additional benefits that money market accounts do not offer, such as reimbursement of ATM fees, cash back rewards, low minimum balance requirements or null and other “member” benefits depending on the supplier.
Benefits of multiple bank accounts
With the wide variety of bank accounts mentioned above, you will notice that your money can potentially work harder for you by using a combination of accounts. Here are some of the benefits that multiple accounts can bring to your finances:
- Higher interest rates. Customers of traditional banks can take advantage of the higher interest rates offered by online savings accounts. Everyday checking accounts can be improved by upgrading to a cash management account at an online bank.
- Dedicated savings accounts. Keep your savings goals on track with automated savings from your checking account to the savings account of your choice, earning as much interest as possible on your money each month.
- Need multiple withdrawals. Some interest-bearing accounts, such as money market accounts and savings accounts, may incur charges for more than a set number of withdrawals per month., an online checking account or a cash management account can help you earn interest and have constant access to your funds.
When adding additional bank accounts to your financial mix, look for the highest possible interest rate (APY), while taking note of minimum balances and monthly fees. Add accounts that help meet your savings goals, and be aware of what it takes to add or change an account, including new debit card numbers and automatic payments that you’ll need to change.
Disadvantages of Multiple Bank Accounts
Despite all the advantages of multiple bank accounts, there are reasons why the choice may not make sense for your finances.
- No more accounts to reconcile. Each month you will have more than just a checking and savings account to keep track of at your local bank, which can get confusing.
- Minimum balances. To access the highest interest rates, many accounts have high minimum balances that you may not be able to meet.
- Higher fees. As you divide your savings, you may find that you are not meeting minimum balance requirements to avoid monthly fees.
If you’re looking for simplicity, multiple bank accounts might not be the best fit for your finances and lifestyle. In this case, you can explore how to find a basic checking and savings account at a single institution to serve your monthly expenses and savings goals.
If you’re organized and don’t mind doing a little research, having multiple bank accounts can help you earn more interest on your money in the long run. Be sure to compare fees and balance requirements for all available options and make sure you always have your emergency savings in an easy-to-access account to help with unexpected life events.