There is no law that says you can’t have multiple bank accounts. Financial institutions allow you to open as many bank accounts as you wish, though they might charge you for it. The more relevant questions to ask are: Are multiple bank accounts suitable or necessary, and how can you find the best bank accounts?
Here’s a look at different types of bank accounts and how having multiple accounts might help or hinder your finances.
Personal Checking Account
At a minimum, you should maintain one personal checking account. A checking account is a banking account in which you deposit funds that you can readily access on demand either by writing checks against your account or by using a debit card. A checking account also makes it easy to track your expenses by category and provides a record of your expenses that might be needed for other purposes such as documenting allowable tax deductions.
You might consider keeping one checking account for paying bills set up with automatic payments and deposits, and another checking account for the money you intend to spend. If you do separate your funds, make sure you have enough money in your accounts to avoid overdraft fees.
If you plan to save money for various goals, you might benefit from opening multiple savings accounts — each used to achieve a particular financial goal. Separating goals can give you a clear understanding of your individual progress for each goal. Separating your emergency fund from an account used to save for a down payment for a home, for example, might make you less likely to tap into your home savings if you have to cover an unexpected expense.
In a low-interest rate environment, you should carefully consider the amount you put in your savings account. Other bank or investment accounts such as CDs might provide a better yield or return. Also, some credit unions offer checking, savings and CD accounts that pay higher interest rates than those of a typical big bank.
In addition to their personal accounts, married couples can benefit from opening and using a joint account. In a joint checking or savings account, each spouse has the legal access to the account and its balance at any time without the permission of the other spouse. This arrangement could be useful for managing the family’s finances and money goals, especially if one partner usually administers the household expenses. Keeping separate personal checking accounts for spending money might also curb fights over finances.
Maintain a Separate Business Account
If you own a business, don’t use your personal bank account for conducting your business affairs. You should have a separate and distinct checking account that is used exclusively for business-related expenses. This arrangement is especially important because an owner or shareholder of a business that commingles his personal funds with that of the business risks losing its legal limited liability protection.
Investment Savings Accounts
If your long-term retirement planning includes investing in stocks, bonds, mutual funds or CDs, establishing a separate investment account makes it easy for you to keep track of all your different investment vehicles. You can also simplify record keeping by receiving one omnibus account statement or using an app like Personal Capital to track all your accounts in one place, including debts and assets.
Impact of Multiple Bank Accounts on Your Credit Score
Unlike a credit card account, which is a financial liability as it represents money owed, a bank account is an asset legally owned by you and under your exclusive control. As such, keeping different bank accounts is unlikely to affect your credit score. If you’re applying for an account with a new bank, your credit report might be pulled but only hard inquiries will impact your credit score.
Is It Bad to Have a Lot of Accounts?
Having many bank accounts isn’t for everyone. Some disadvantages of multiple bank accounts are as follows:
- Unless you have fee-free accounts, fees for multiple accounts can add up quickly.
- Multiple accounts can be difficult to keep track of and managing the associated documentation can be cumbersome.
- Total deposits in your multiple accounts at the same bank might exceed FDIC limits.
- You might be missing out on better interest rates at other banks if you stick with the same bank for all your accounts.
Consider your particular financial circumstances carefully, and then chose the appropriate banking accounts to best address your needs.