We've all pondered this: how many bank accounts are necessary? Financial professionals share their insights.
Do you have the right number and types of bank accounts? You're not alone in this consideration. Most people maintain a checking account, a savings account, and perhaps an additional account to dodge international ATM fees. Depending on personal circumstances, you might also have a savings account for specific goals like a house down payment or a joint account with your spouse while keeping separate savings accounts. If you're a freelancer or business owner, the complexity increases as each income stream might require its own accounts. This raises a vital question: how many bank accounts do you truly need?
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We consulted experts for their recommendations on how many bank accounts to maintain and the rationale behind it.
Embrace Simplicity
According to Julie Ford, a CPA and Certified Financial Planner, “Most individuals benefit from just one checking and one savings account. Simplicity is invaluable.” She recommends online banks, which often have no fees and provide competitive interest rates.
Brannon Lambert, a CFP, echoes this sentiment. “I advocate for simplicity in all scenarios. Complicating things offers little advantage,” he asserts. “Have a checking account for daily expenses and a money market account for savings. Avoid keeping extra funds in your checking account to prevent overspending. If you wish to allocate money for specific goals, consider a separate account for that purpose.”
If you’re married, consider shared accounts, Ford advises.
“For couples, one checking and one savings account can suffice. Your checking should maintain a comfortable balance to ensure you can handle monthly bills and credit card payments with ease,” Ford explains. “Your savings account should ideally hold an emergency fund covering at least three months of essential living costs and debt obligations.”
Lambert notes that if couples prefer separate accounts, they’ll need to manage additional accounts.
“If you both want personal checking accounts for your spending, that's fine, but maintaining a family checking account is essential for shared household expenses,” he adds.
When Are Extra Accounts Necessary?
There are specific situations where additional savings accounts become beneficial, Ford mentions. Freelancers without steady income might need to simulate a regular paycheck.
“Establish a dedicated savings account for your income. Transfer a fixed amount to your checking account monthly to create a consistent budget,” she suggests.
If you anticipate a significant tax bill, allocate a portion of your earnings into a tax savings account with each paycheck. You’ll appreciate this come tax time.
Planning for sizable annual expenses like a holiday or summer camp could also justify an additional savings account. Set aside a specific amount monthly for these expenses.
“If you tend to accrue credit card debt during vacations, try this strategy,” Ford recommends. “Put aside funds before you travel, allowing you to pay your credit card bill in full afterward.”
Additional reasons for opening savings accounts include setting aside funds for charitable donations, providing financial help to family, or managing homeowner expenses.
“Keeping extra funds in a dedicated account will safeguard your savings goals in case of emergencies,” Ford emphasizes.
If You Run a Business
It's crucial to separate personal and business finances, which may require extra accounts.
“Even as a sole proprietor, keep your business checking distinct from personal accounts,” Ford advises. “A single business checking account is usually sufficient at first, but later, you might find a savings account useful for maintaining cash reserves separate from operational funds.”
If You Live Paycheck to Paycheck
Having multiple accounts can help if you tend to deplete your checking account.
“For those living paycheck to paycheck and spending all funds in their checking account, extra savings accounts may help, especially for significant annual costs,” Ford points out. “Identify your largest annual expenses and save monthly into dedicated accounts for those.”
However, Lambert recommends keeping it simple.
“Limit yourself to two accounts,” he suggests. “A checking account is a must, along with a savings account, even if funds are minimal. If extra cash arises, prioritize saving it for emergencies. If your bank imposes fees on savings accounts, focus on your checking account until you can afford both.”
