How Many Savings Accounts Should I Have?

You probably know that a savings account is an excellent place to keep money safe, but you don't have to stick to one account. Opening multiple savings accounts can help with budgeting and organizing your finances. You should have a savings account as an emergency fund for life's unexpected expenses, such as car repairs, medical bills, or loss of your job.

You can also have a savings account for each goal, such as saving up for a family trip or buying a home. Depending on your bank, there's likely no limit to how many savings accounts you can open, but it can be challenging to keep track of them after a certain point.

Learn the benefits of multiple savings accounts, how many you can have, and how you can use them to organize your finances.

Why Use Multiple Savings Accounts?

There are several benefits to having more than one savings account.

It Sets Money Aside

Setting up different savings accounts for specific financial goals helps you save for those goals. You begin by moving money out of your primary checking or savings account to a new savings account. Doing this removes it from easy access and helps you resist the temptation to spend the money you've earmarked for something else.

It Automates Your Savings

You can automate monthly transfers to multiple savings accounts if you have a steady income. That way, you never forget to save for your goals, and you get money in the right place quickly.

Many banks have automatic transfer features that come standard with your account. If yours doesn't, you might be able to transfer funds to another bank, but check to see if the bank will charge you for it.

It Protects You From Yourself

After you move money into a savings account earmarked for a particular goal, you may experience some guilt if you raid that account for luxury items or unnecessary expenses. This behavioral trick can help you stay on track.

You Can Monitor Your Progress

Multiple savings accounts let you track your progress toward your goals. When everything is mixed together, it’s less clear where you stand because your money is all in one place. You can even label each savings account with the goal you have to help you track your financial plan.

You Can Build Momentum

Success is motivating. If you see an account growing, you have positive reinforcement to continue your saving behavior. Working toward your goals is more enjoyable, and you’re more likely to keep it up.

You Hold Yourself Accountable

Using multiple savings accounts lets you quickly see why you're not meeting your financial goals. In other words, your account balance doesn’t lie. If you decide to save money for something but don’t follow through, it’s important to figure out what’s happening.

You Smooth Your Spending

A dedicated savings account can help you budget for significant annual expenses. For example, if you pay property taxes and homeowners insurance annually instead of using an escrow account, you might want to add to a savings account every month to build up the funds you need. By spreading out the burden of annual costs, you can avoid spending shocks throughout the year.

Your Savings Is Insured

If you’re fortunate enough to have significant cash savings, you might open savings accounts at different banks to keep your account balances below FDIC insurance limits. The $250,000 limit is typically per account per institution, so keeping excess amounts at a different institution helps you stay safe (ensure the bank is under separate coverage). That said, having more than $250,000 in one bank may be possible—ask your bank for details.

Using Multiple Savings Accounts

There is a little more to it than just setting up multiple savings accounts and putting money into them. Creating a strategy can help you get your savings organized and help money flow to the correct accounts.

Identify What You're Saving For

The first step is to identify what you're saving for. Find out how much your goals will cost, then figure out if you'll be able to save that much realistically. For example, if you wanted to take your family to Disneyland, you'd pick the length of your vacation, how many days it takes to travel, and all the costs involved in getting there.

A three-day Park Hopper ticket costs $390 per adult and $370 per child. If you have a spouse and two children, you'd need $1,520 plus travel, lodging, and meals.

Let's say that four nights in a hotel costs $1,000, and $800 for 12 meals. Also, it cost $1,000 for round-trip flights and $150 for a car rental. As a result, it's possible that you'll need $4,470 plus 10% for extra expenses. So if you can only save $100 per month for this trip, it would take nearly 45 months to save the $4,470 you need.

If you have multiple goals, you'll need to compensate for those by playing with the numbers and timeline to make sure you can save enough and meet your monthly expenses at the same time.

Find Out What Your Bank Offers

Second, you should find out if your bank lets you open multiple savings accounts. Look for monthly fees, required minimums, transfer fees, transfer limits, or any other factors that might cost you extra if you use multiple accounts.

If your bank doesn't have what you need, look for another bank. Online banks can also have what you need; in fact, they might offer the easiest approach to using more than one savings account. For example, Ally Bank allows you to open up to 10 sub-savings accounts as part of your primary account. Online banks also offer sub-accounts, which have several benefits:

• No monthly fees, in most cases, which can wipe out any interest you earn or take from your savings
• No account minimums, allowing you to start small
• Competitive interest rates, helping you grow your savings

Automate as Much as Possible

Third, once you've identified your goals and figured out how much you can save, consider the automatic transfers mentioned previously. This is important when implementing your strategy because it makes sure you're paying yourself.

Life happens, you may get busy, and moving funds to a different savings account might not be at the top of your priority list. To ensure you keep saving, link your primary checking account to your savings accounts and schedule automatic transfers for each pay period.

Refine Your Strategy

A good rule of thumb when planning and implementing a financial strategy is that it's best to look over your plan every two or three months or anytime you experience a change that might affect your finances. Many people experience events that can change how they save, how much they save, or what they are saving for. With that in mind, you might have to adjust your payments over time, but that's okay as long as you keep working at it.

To help you address any life events, you can prioritize your goals. That way, if something happens, you can reallocate money to fund your high-priority goal; you'd "borrow" from your lower-priority accounts. Diverting funds from your other accounts isn't ideal, but reality occasionally forces your hand—being able to take it in stride by having a plan, making adjustments, and keeping it going is what will get you to your financial goals.

Frequently Asked Questions