How many bank accounts should I have? To better manage your finances, you should have three bank accounts. You should have one checking account and two high-yield savings accounts.
How Many Bank Accounts Should I Have?
I created the “3B Banking Method” which means you should have three bank accounts. Simple and easy enough to remember 🙂 Three bank accounts are all it takes to manage your finances successfully.
With that said, sometimes you’ll need to have more than three bank accounts but we’ll talk about when you would later on.
First, why do you need one checking account and two high-yield savings accounts?
One Checking Account
Your one checking account will be used to deposit your paycheck, pay your monthly bills and make everyday purchases.
Bills include your mortgage/rent, utilities, cell phone, car insurance, etc. It’s an expense that’s paid each month.
Everyday purchases include your groceries, personal care items, household items, coffee, etc.
As you can tell, multiple withdrawals will be made from your checking account each month which is perfect because a checking account does not limit how many withdrawals you can make.
Some accounts, like high-yield savings accounts, do have withdrawal limits but we’ll talk about why that shouldn’t be a problem later on.
Two High-Yield Savings Accounts
A high-yield savings account pays interest. This means you’ll get paid a little bit of money for keeping your money in the account. Traditional savings accounts don’t pay interest and if they do it’s a ridiculously low amount. When choosing yield-savings accounts, look at APY (Annual Percentage Yield) versus interest. The higher the APY the better.
Your two high-yield savings accounts will be used to keep two very important saving goals.
Your first high-yield savings account will be used to keep your emergency fund money.
I recommend keeping an entirely separate bank account for an emergency fund for two main reasons. One, you’ll always be 100% clear on the balance, and two, you won’t “accidentally” dip into your emergency fund to purchase your last-minute vacation for example.
Your emergency fund is really important and you want to make sure you’re always 100% clear on the balance and/or how much money you need to fund it.
How much money do you need in your emergency fund? Most financial experts recommend keeping 3-6 months worth of living expenses in your emergency fund.
If you live in a two-income household, three months should be sufficient. If you’re single or live in a one-income household, six months should be sufficient.
How do you calculate living expenses? Total your fixed (mortgage/rent, car insurance, cell phone, transportation, utilities, etc.) and variable (groceries, clothes, household items, etc.) monthly expenses. Multiply that by either three or six and you have your emergency fund amount!
When would you take money out of your emergency fund?
If you were to lose your job, have an unexpected home, car, or medical expense.
Your second high-yield savings account will be used to keep the money for any other savings goal you might have.
Maybe you’re planning a vacation next year and need to save up for it. Christmas is in a few months and you want to start saving or perhaps you plan on saving for a down payment on your first home!
If your second high-yield savings account starts getting confusing because you don’t know how much money is for what goal, it might be a better idea to just keep that money in cash.
However, keep the smaller of the savings goals in cash, don’t keep your down payment in cash because the more money you have in a high-yield savings account the more you will get paid in interest. Make sense?
Keep in mind, high-yield savings accounts have withdrawal limits. You can only make six withdrawals each month.
This shouldn’t be a problem though because if you’re using a high-yield savings account as I’ve recommended, you shouldn’t have to make more than six withdrawals a month.
Final Thoughts On How Many Bank Accounts Should I Have?
When would you need more than one checking account or two high-yield savings accounts?
Multiple checking accounts is probably a good idea when you own a business, are married, or plan on keeping more than $250,000 at any one bank.
When you own a business or are self-employed, it’s best to keep your business expenses and deposits separate from your personal checking account. You don’t need to have a separate checking account for your business but when it comes to taxes, it makes things a lot easier.
If you’re married, it might make sense to keep a joint account where you and your spouse are the owners and one checking account just for yourself and your expenses.
If you plan on keeping more than $250,000 at any one bank, it’s best to have accounts at multiple banks because the FDIC only covers $250,000 if for whatever reason your bank closes. The FDIC (Federal Deposit Insurance Corporation) is a government agency that guarantees up to $250,000 per individual, per bank, and $500,000 for a joint account.
So if you have $275,000 in one checking account (or even two checking accounts) at the same bank, only $250,000 will be covered if the bank closes.
Lastly, your checking account will also be used to transfer to your retirement and/or brokerage account.
Alright, so you have one checking account and two high-yield savings accounts. Should all your money be kept in your bank accounts?
Nope! You should not keep all of your money in your bank accounts.
Although high-yield savings accounts pay interest, it’s literally nothing compared to how much more you can grow your money by investing it in a retirement and/or brokerage account.
You should be contributing monthly to your retirement (IRA, 401(k), 403(b), etc.) and/or brokerage account. How much you contribute depends on your financial situation however make it a priority to always contribute to both or one of these accounts.
How Many Bank Accounts Can I Have?
Can you have two bank accounts? Absolutely. Can you have two checking accounts at the same bank? Absolutely. You can have as many bank accounts as you want but I recommend you don’t. Why?
Because too many bank accounts can make money management confusing, difficult, time-consuming, and expensive.Keep it simple and start with the three bank accounts I’ve recommended.
After you’ve successfully learned how to manage three bank accounts, it might be a good idea to open another account or switch banks entirely to take advantage of new account bonus offers.
However, don’t get caught up in the new account bonus offers. Don’t open a new bank account just to get the introductory offer and then forget about it. Many banks require that you have a minimum balance or that you deposit monthly to the account and if you don’t, you’ll have to pay a monthly service fee. Wouldn’t it get confusing if you had three checking accounts and three high-yield savings accounts? Yes, and it is not necessary!
Why You Should Have Multiple Bank Accounts
1. Helps Organize Finances.
Keeping all of your money in one bank account is like keeping all of your clothes in one drawer. Try organizing your shirts, pants, socks, sweaters, intimates in one drawer and see how quick it is to get ready in the morning? Right?!You should have multiple bank accounts because it helps keep your money organized.
As I have mentioned, you only need one checking account and two high-yield savings accounts to manage your finances successfully. In some instances, you might need two checking accounts which I’ve discussed when you would but for the most part, three bank accounts will do the job. Each account (one checking and two high-yield savings accounts) serves a unique purpose so it’s important to have all three.
When it comes to having your bank accounts at different banks, sometimes you have to. For example, you have a checking account at Chase and want to keep it there but find that a different bank offers a better APY (Annual Percentage Yield) on high-yield savings accounts. In this case, you would have bank accounts at different banks and that’s okay.
2. Helps Achieve Savings Goals.
Separating your savings from your checking account is crucial. Keeping your emergency fund money in one bank account will ensure that you’re always 100% clear on the account balance.
Let’s say your emergency fund should have $12,000 and your balance is $10,000. How much more clear can it be that you only need $2,000 to 100% fund it? Pretty clear right?
Keeping a separate bank account for other saving goals is also a great way to see how much you’ve actually saved up and how much you have left to go. If you had one savings account where you kept your emergency fund and other savings money, you would get confused and it would be easier to spend your emergency fund money on things other than an emergency!
3. Helps Protect Money.
If you have more than $250,000 in one bank (which includes the sum of any checking/saving accounts you have at that bank), make sure you open an account with a different FDIC-insured bank because remember, only $250,000 per person, per bank, is insured.
If you have a joint account, up to $500,000 is insured. If your joint account balance is $650,000, only $500,000 will be insured by the FDIC.
Regardless of the amount of money you have in your bank account, always open bank accounts in FDIC-insured banks.
Pros and Cons of Having Multiple Bank Accounts
Having multiple bank accounts is a good thing. Multiple bank accounts can successfully help you manage your finances however it can also be a bad thing if you open too many bank accounts and then forget about them.
- Helps organize finances.
- Helps achieve savings goals – you’re 100% clear on the balance and how much you have left to achieve it.
- Protects your money if your bank closes. Always choose FDIC-insured banks.
- Helps with taxes if you’re a business owner or are self-employed.
- Helps keep a healthy money relationship with your spouse.
- Earn interest on high-yield savings accounts.
- Transferring money from your checking to your high-yield savings accounts is easy.
As you can see, there are many advantages to having multiple bank accounts.
The key is to remember the purpose of each bank account. For example, one of your high-yield savings accounts will only be for your emergency fund money. Your second high-yield savings account will be for other savings goals.
- Confusing, time-consuming, and expensive if you have too many bank accounts.
- Monthly service fees if you don’t meet the minimum balance or deposit requirements.
- Six withdrawals a month limitations for high-yield savings accounts.
- Don’t get cards or checks with high-yield savings accounts.
- Susceptible to fraudulent activity if you’re not keeping track of purchases.
Most banks require that you keep a minimum balance or make a certain number of deposits each month otherwise you’ll pay monthly service fees.
If you keep things simple and start with three bank accounts, this should not be a problem. The six withdrawals a month limitations for high-yield savings accounts shouldn’t be a problem either if you’re using the account as I’ve suggested.
Let’s say you lose your job and need money from your high-yield emergency fund savings account. You can make one withdrawal a month and the amount will be your monthly living expenses.
Also, what some people may see as a con, I see it as a pro. When you open a high-yield savings account, you won’t get a card or checks. I see that as a pro. Without having a card or checks, you’ll be less susceptible to making withdrawals. When it comes to withdrawing from your high-yield savings account, it’s usually pretty simple, just make an online transfer to your checking account.
Before Opening a New Bank Account
Before you open any new bank account, I recommend you take the time to answer the five questions below.
- Is the bank FDIC insured? You want to do whatever you can to protect your money, only open bank accounts with FDIC-insured banks.
- What are the monthly service fees if I don’t meet the monthly minimum deposit requirements?
- If I prefer to go to the bank in person – are there branches near me?
- If I deposit checks frequently, is mobile deposit available and/or do I have ATMs near me?
- If I’m opening a high-yield savings account – am I getting the best APY (Annual Percentage Yield)?
You might have to do a little research to get the answers to these questions but you don’t open new bank accounts every week (at least I hope you don’t) so taking the time to answer each question is important and beneficial for you in the long run.
Tips to Successfully Manage Multiple Bank Accounts
Before you start worrying about having multiple bank accounts, or maybe you’re not, “managing” multiple bank accounts is not difficult. I add quotes around managing because bank accounts basically manage themselves once you understand the bank’s requirements such as minimum balance or withdrawals limits. Managing multiple bank accounts is easy if you follow these three simple tips:
- Set up alerts.
- Set up an online account.
- Check balances quarterly.
Setting up alerts is easy and you only have to do it once.
If your bank requires that you keep a minimum account balance. Set up an alert for when you’re close to going below the minimum account balance.
For high-yield savings accounts, set up withdrawal alerts. If you do, you’ll be notified via email or text when you’re close to your limit of six withdrawals a month.
For example, this is how I would set up withdrawal alerts on my savings accounts:
For all accounts, create an alert every time a payment is processed. For example, every time I spend more than $0.01 (and you have the option to select the amount), I get a text message.
Creating an alert to receive a text message every time a payment is processed will help protect you from fraudulent activity.
What’s the likelihood that you’re going to sit down, log in to your account and make sure every debit that was processed was made by you? Not likely…So for every bank account, create an alert every time a payment is processed. You guys are not afraid of getting texts 😉 so update your alerts to be received via text message.
Create an account online so that you can see your balance, statements, transaction history, pay someone using Zelle, AND create your alerts!
How Many Bank Accounts Should I Have Summary
In summary, my recommendation is that you should have three bank accounts. You should have one checking account and two-yield yield savings accounts.
Your checking account is where your paycheck is deposited and where your monthly and daily expenses are debited from. Your two high-yield savings accounts are for your emergency fund and short-term savings goals. I hope this has helped answer your how many bank accounts should I have question!
Lastly, don’t forget that you should not keep all of your money in your three bank accounts.
Investing your money in a retirement plan (IRA, 401(k), 403(b), etc.), brokerage account, or any other investment will be more profitable in the long run rather than keeping your money in cash.