When you open a savings account, you might have a specific goal in mind or you might just be saving for emergencies. Keeping all the money in one account, however, might cause you some problems in the future. Choosing to have multiple savings accounts can help you manage your money, your savings goals and offer you protection for your savings. You might also be able to find higher interest rates when you open an online savings account.
Reasons to Have Multiple Accounts
There are many different reasons why you might choose to have more than one savings account. Here are five primary reasons you should have multiple savings accounts:
Protect Your Savings
One of the biggest reasons you should have multiple savings accounts is to protect your savings. Using an online account or opening a savings account at a different bank than your checking account makes it more difficult to transfer money between accounts since it can take two to three days to transfer. This can help reduce impulse spending, while still giving you access to the money when you need it.
Save More Quickly
Although you might have your emergency fund in the same bank as your checking account, it might not be earning a very high interest rate. Look for a bank or credit union that offers accounts with higher interest rates, which can help you reach your savings goals more quickly. Online banks and credit card companies offer high-yield savings accounts that will allow the interest rate to accrue more quickly.
Discover: 13 Ways to Increase Your 401k
Track Your Savings Goals
While it might be easier to set up an automatic transfer to just one account each month, your savings goals might be difficult to track because the money is all in the same account. Having two separate accounts — such as one for an emergency fund and another for a down payment on a home — makes tracking your goals easier, and it keeps your other funds safe should an emergency arise.
Keeping Your Finances Separate
Even though you and your partner might have a joint savings account to save for a collective financial goal — a vacation or wedding, for example — you should still consider keeping a separate savings account for your own financial goals. If you and your partner were to split up, there is no financial protection like you would have with a divorce.
Take Advantage of FDIC Insurance
The FDIC will cover up to $250,000 in combined account totals for the same depositor in the ownership category. If you have more than that in a certificate of deposit, savings account or a money market account at the same bank, you should move some of that money to a savings account at another bank to ensure it’s protected.
Types of Savings Accounts
When you are opening a new account, you should look for a high-interest savings account. Here are three basic types of savings accounts that offer a higher interest rate than your traditional savings account:
- High-Yield Savings Account: A high-yield savings account is an FDIC-insured account that has a higher interest rate than what you would find on a traditional savings account. You can find these types of accounts at online banks or through credit cards companies.
- Money Market Account: A money market account is an account that offers a higher interest rate, but it limits the number of transactions you can make per month. This account is available at most credit unions and banks. You might even find higher interest rates from online banks. These accounts are insured by the FDIC.
- Certificate of Deposit: A certificate of deposit, or CD, typically offers higher interest rates, but you lock the money into the account for a set period of time. If you withdraw money early, you can face penalties. This is a good option for long-term savings that you know you will not need right away. You can open this type of account with banks and credit unions.