Just over 98% of U.S. households have what the Federal Reserve Board calls a transaction account, which includes checking, savings and money market accounts, as well as prepaid debit cards. But what the Fed’s study doesn’t say is how many bank accounts each individual or family owns.
In some households, the answer is one, while in others, the answer is multiple. Is there a “right” number of accounts you should have?
Not really, according to the experts. What’s right for yourself or your family doesn’t necessarily work for the neighbors next door, the experts say.
“It really depends on many things like if you have a partner or you are single, how much money you make, what’s your lifestyle, how much debt you have and above all, what are your financial goals,” said Gilad Uziely, the CEO of Sequence.
“My personal opinion is that we need to have a job for each dollar, and we shouldn’t be afraid of having multiple accounts as it can make the tracking and management of our money much easier.”
There are many ways to solve your own bank account puzzle, but here are two options to use multiple accounts to fulfill your banking needs. Let’s examine.
Getting Started: Building on the Basics
A one-size-fits-all approach doesn’t suit everyone, but you should start with the basics. But what are your must haves when it comes to banking?
“It really depends on your unique situation and goals. For me personally, I think two to four accounts hits the sweet spot,” said James Allen, the CEO of Billpin and a Certified Financial Planner (CFP).
“Here’s my logic: One checking account for basic living expenses like rent and utilities. You gotta keep the lights on! A separate checking account for variable spending on stuff like dining out, shopping, travel — gotta treat yourself sometimes. Then a high-yield savings account for building that emergency cushion and saving for big stuff like a down payment. Maybe throw in another savings account for shorter-term goals like a vacation or a new computer.”
If you believe you need another savings account, such as for your child’s education, then go ahead and open one. But there is no need to go overboard on accounts, he said.
“The key is setting up a simple system that helps you manage your money in a way that makes sense for your lifestyle,” Allen said. “Most people don’t need a crazy complex 20-account setup. Start with the basics, tweak as needed, and you’re good to go.”
Structured Account System
If you want something that is more rigid with a blueprint to follow, the structured account system gets the endorsement of Michael Reynolds, a certified financial planner and owner of Elevation Financial. It’s manageable and separates your accounts while considering the following: the essentials, savings, travel, taxes and discretionary spending.
Start with a household operating account, which Reynolds recommends opening at a local bank or credit union with a physical branch in case you need an extra service, such as a cashier’s check or a wire transfer.
Reynolds said your savings account should include your emergency fund and your “sinking” fund.
Start with an account with a strong interest rate. Reynolds said you’ll want to open your account with an emergency fund to handle at least three to six months of expenses. Then, add money to the “sinking” fund for large purchases, such as a car or home down payment or a home improvement project, as well as holiday expenses.
“Why combine the emergency fund and sinking fund into one account? Because it all ends up being basically the same money,” Reynolds said. “You might think it should be separate but think of a scenario in which you would need to use your emergency fund. Once you use it, your sinking fund effectively becomes your new emergency fund to replace it and then you’re back to building up your sinking fund so you might as well keep it all in one account.”
If you want the clear division between your emergency fund and other savings, choose a bank with savings account “buckets” that allows you to divide your money into separate pots. While the bank keeps the cash in one account, you can divide it, on paper, into separate buckets and see the balance in the entire account and each bucket all at once.
If travel and vacation are priorities for you and your family, create a separate account for your travel expenses. You won’t be able to spend vacation money you don’t have this way.
“At least from a financial standpoint, I’ve found that among all the things that can suck away cash flow and get people into debt, vacations are at the top of the list,” Reynolds said. “I’ve seen so many people end up strapped and further in debt as a result of vacations. This can be avoided by establishing a travel and vacation account.”
In today’s gig economy, many households need to put aside money for income taxes, and a savings account is ideal for that, according to Reynolds.
“If all your income is through payroll as an employee, then you can skip this account. However, if you’re an entrepreneur or self-employed, then you are likely aware that you will need to pay quarterly estimated taxes,” he said. “Much like the holidays, quarterly estimated tax payments can sneak up on us and wreck our cash flow if we don’t plan for it.
“Setting up a tax account is a great way to squirrel away some money each month for these payments. It’s a great feeling to be able to pay those quarterly estimates without missing a beat in your day-to-day operations.”
Once you know that emergency fund and those taxes are taken care of, wouldn’t it be nice to have a little fun?
Reynolds recommends putting aside a budgeted amount of money in your Venmo account, then ordering a debit card. When you’ve used up your fun money, put the debit card away until you replenish the fund next month.
“This account is a bit more tuned toward those in committed relationships who combine finances. If you’re single or you keep your finances individual, this may not be an account that you need,” he said. “But if you are in a combined relationship, then this can be a great way to work as a team but also maintain complete autonomy over a portion of your finances.
“This account is for stuff that you just want and that would likely be classified as luxury or treating yourself or for buying stuff for pure fun that is all about you. While I love the idea of combining finances when you are married, I also know that having some money that is just for you and no one else can be a great feeling.”
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Bob Haegele contributed to the reporting for this article.