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How many bank accounts should I have?

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writing-chequeUnless you enjoy the bookkeeping involved in balancing your bank accounts, you may wonder if life would be simpler if you could just get by with a single account. Well, you can but it's a bit like trying to get through life owning one pair of shoes -- chances are you'll find it won't meet your needs for all occasions and circumstances.

Acquiring multiple bank accounts is an inevitability for many people, and not necessarily a problem as long as you do it with a sense of purpose.

Determining how many bank accounts to have

So, how many bank accounts does one person really need? Probably at least two, and often more than that. Here are four items that contribute to the best answer:

  1. The right tool for the job
    Different types of bank accounts are designed to accomplish different things. You probably need a checking account for frequent transactions like paying bills and withdrawing cash. On top of that, you should have a separate account to accumulate savings. If you want to maximize the interest you earn, it might entail opening a certificate of deposit (CD) account or multiple accounts if you want to set up a CD ladder.

  2. Separating business from pleasure
    If you run your own business, or have regular business expenses, it makes sense to separate your business accounts from your personal accounts. This can make deducting expenses easier at tax time, and should better enable you to evaluate the financial performance of your business activities.

  3. Individual spouse accounts
    Married couples share many things, but that doesn't have to mean joint bank accounts. Retirement accounts like IRAs are designed to have individual owners, and it also might be easier to keep track of your balances and transactions if you and your spouse have separate checking accounts.

  4. FDIC insurance management
    Here's a nice problem to have: you've accumulated so much savings that your bank account exceeds the $250,000 FDIC insurance maximum. Since this ceiling applies to each account holder at a given bank, you can insure larger amounts of deposits if you spread your money among multiple banks.

Is it bad to have multiple bank accounts?

What's the other side of the story -- given that multiple bank accounts can serve a variety of purposes, is there a downside to opening multiple checking accounts or deposit vehicles? Do too many bank accounts hurt your credit?

Having multiple bank accounts is not like having too many credit card accounts -- it won't reflect negatively on your credit rating. Still, keep in mind that the more accounts you have, the more statements you'll have to monitor and balance. It's important to keep a close eye on your money so you can stay on top of fees, be alert to any fraudulent activity and track your savings progress. All of that is more easily done if you have fewer accounts.

Also, bank accounts often have minimum balance requirements and/or regular fees. Spreading your money too thinly might prevent you from qualifying for the best interest rates or cause you to incur more fees than are necessary.

Having multiple bank accounts with different banks

Chances are you are going to need a checking account for regular transactions, a savings account for wealth accumulation and possibly additional accounts like CDs and IRAs to grow your savings. Should you open these accounts at the same bank or with multiple institutions?

Having multiple accounts at the same banks can make transferring balances easier and allow you to qualify for better terms. On the other hand, having multiple bank accounts with different banks can have advantages: the bank offering the best checking account may not have the most competitive savings or CD rates.

Opening each bank account should be approached as a stand-alone decision. Decide what kind of account you need to serve a specific purpose and which bank offers the best terms for that type of account, and that should help you make good decisions about how many bank accounts to have and where to open them.

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