The number of bank accounts you should have depends on several factors. Having too many accounts can get stressful and confusing, and you might have a hard time tracking where you’ve put what money. At the same time, it can be useful to have more than only a standard checking and savings accounts.
Your checking account is the account where you pay your bills and deposit your paycheck, and it’s the main workhorse of your financial life. You definitely need at least one checking account. Checking accounts allow you to make unlimited withdrawals and deposits, unlike savings accounts.
If you’re married, it may work best for your family to have three checking accounts – one for each side of the relationship, and one joint account. If one spouse is a spender and the other a saver, separate accounts could reduce disagreements over money and provide limits on spending. The joint account can be used to pay household expenses, while the individual accounts can pay for budgeted items such as clothes and other “wants.”
Many checking accounts have the benefit of allowing unlimited transactions, but they offer little to no interest. A savings account provides an opportunity to earn interest, and putting money into a savings account will make you less likely to spend it.
You should have at least one savings account, but it may make sense to have two. You should keep your emergency fund in a high-yield savings account, which may be somewhere other than where you usually bank. A standard bank savings account could be a great place to save up for short-term goals, such as saving for a car or a vacation.
Some people even have multiple savings accounts to save for each goal in its own account. For example, they have separate accounts for their emergency fund and for saving up for a new car, saving for a vacation, and saving for a down payment on a house. If you’re saving for more than one big-ticket item, it might be helpful to set up your accounts this way so you can easily see your progress toward each goal.
Certificate of Deposit
A Certificate of Deposit, or CD, is an account at your bank that earns a set interest rate for a set amount of time. The kicker is, this money is subject to penalties if you withdraw it before the agreed upon amount of time is up. The length of time usually ranges between three months and five years.
Your emergency fund should not go into this type of account since you won’t be able to access your money right away without penalties. It’s essential to be able to access those funds within hours when there’s an emergency.
However, if you have money which you are saving for a long-term goal and you know you won’t need the money during the term of the CD, this could be a good choice for you. CDs usually earn a higher interest rate than a high-yield savings account without the risk that goes along with investing.
Money Market Account
This type of account is similar to a savings account, with a few key exceptions. Many of them require a minimum balance, and they may be subject to other rules such as withdrawal limits or deposit requirements. The FDIC insures these accounts.
Before opening one of these with your bank, make sure that you can meet the minimum requirements. If you’re regularly paying fees for dipping below minimum requirements, then the extra interest you’re earning might never end up in your pocket.
Remember that no matter where you put your money, any interest you earn over $10 in a year will be subject to taxes. At the end of the year, you’ll receive a Form 1099 from the banking institution, and you’ll need to claim it when you file your taxes.
Ultimately, the number of bank accounts you should have depends on what you hope to get out of your accounts and your preferred method for keeping track of your money. Multiple bank accounts can make it easier to keep track of finances and take advantage of higher interest rates. However, depending on your goals and your willingness to keep track of accounts, a basic checking and savings account combination is just fine.