Should You Have Multiple Savings Accounts? | Banking Advice

Some savers maintain several savings accounts to set aside money for various purposes, such as paying off debt, building a down payment for a home or guarding for emergencies.

Banks generally do not have rules on how many savings accounts a consumer can own. Some people like to put their money for various goals in separate accounts. Maintaining an account for a different purpose encourages some people to save more and not withdraw their money from one intended for a large purchase or rainy-day fund.

“You may want to keep the money you’re saving for next year’s vacation or the new car purchase separate from your emergency fund, and having multiple savings accounts can make tracking those objectives easier,” says Greg McBride, chief financial analyst for Bankrate, a financial data company.

Consumers who want to ramp up their savings and have more than one account probably should aim to open them at the same bank or credit union for convenience’s sake.

Shop around and open your savings accounts at a financial institution that offers competitive rates, and keep your assets there, says Daren Blonski, managing principal of Sonoma Wealth Advisors.

“Many of the large low-cost investment institutions now have full banking capabilities, so you can centralize your financial life,” he says. “Charles Schwab, for example, is a sizable banking institution and has a full lineup of banking solutions in addition to their retirement tools.”

One strategy is to label your different savings accounts to keep the goals for them separate. This behavioral trick helps people avoid using the savings for emergencies and instead put the money in an account meant for a house or car down payment or for a large purchase like a major appliance.

“Whether you utilize one bank or spread the accounts across multiple banks depends on how much you value convenience versus rate of return,” McBride says. “Having everything under one roof is certainly convenient, while having the accounts at different banks can allow you to shift your money between banks in order to capture the best yield.”

The best way to fund a savings account is to have it set on regular deposits, Blonski says.

“If you automate the process, it’s less to think about, and you will be more consistent,” he says.

You can set up automatic transfers from your checking account into the savings accounts set up to fund your goals, such as the vacation fund or holiday spending fund, McBride says.

The number of savings accounts that a consumer should have depends on the person’s goals and how often they save. Automating savings directly from a paycheck can help expedite the savings process. Some people prefer to have a savings account allocated for a down payment for a mortgage separate from one intended for a rainy day or a vacation.

“One rule of thumb is to have a savings account for each of your financial goals,” says Evan Kulak, co-founder of Polaris Portfolios, a financial planning firm.

“Even if you are just starting out, be sure to make consistent transfers to build your balance up over time,” he says.

Even though interest rates are lower in 2021 compared with previous years because the Federal Reserve is keeping federal rates low – and plans to do so for several years – many consumers should still have more than one account to motivate them to save more.

“Having multiple savings accounts doesn’t necessarily have to be predicated on where interest rates are,” McBride says. “Don’t fall into the trap of shunning savings for riskier investments just because interest rates are low. The money in your emergency fund isn’t designed to grow into fabulous wealth but to protect you from high-cost debt or liquidating other assets when unplanned expenses arise.”

Consumers should be aware of any minimum balances required by the bank and consequences such as a lower yield or having to pay a fee, he says. Many nationally available online savings accounts do not require a minimum deposit amount, set a minimum balance or charge fees.

The federal Regulation D limits consumers to six withdrawals each month, so keep track of each time you transfer money from your savings account to your checking account to pay bills or you may face a fee.

Having multiple savings accounts for each of your savings goals is a good idea regardless of current interest rates, Kulak says.

“Goals-based savings provides a simple and efficient way to reach your financial goals,” he says. “By creating a separate savings account for each goal, it is easier to track your progress, automate your deposits and hold yourself accountable. Fortunately, most banks and credit unions make it easy to digitally open and fund multiple savings accounts.”

Shop around since some banks are still offering competitive interest rates even though they are lower now, Blonski says.

With even high-yield savings accounts yielding less than 1%, investors might allocate some of their money into an exchange-traded fund since they trade like stocks, making them a liquid investment. You can buy and sell shares in an ETF through a bank or brokerage account.

Fixed-income investments are still generating decent yields despite the low-interest-rate environment. The yield for the JPMorgan Ultra-Short Income ETF (ticker: JPST) is more than 2% for the past year, much better than certificates of deposit and savings accounts yielding 0.6%, Blonski says.

However, don’t forget that ETFs can’t guarantee you won’t lose money.

Kulak says, “Although savers may receive a higher yield, it is important to remember that investment products come with increased risks. Unlike savings accounts, which are insured, investment products carry the risk of default. … Besides the risk of default, there is liquidity risk, which is the risk that you may not be able to buy or sell your investments quickly.”

Consumers should always keep their investments and emergency funds separate, McBride says.

“The emergency fund should be free of any risk of loss, ideally federally insured and available for immediate withdrawal,” he says. “While keeping some extra cash in a money fund at your brokerage is a great way to capitalize on a market sell-off, this, too, should be considered separate – and kept separate – from your emergency savings.”

Here are six banks and credit unions that offer higher interest rates with either no monthly fees or low or no minimum deposit amounts and where you can easily transfer your money from a savings account to a checking account online or via an app.