Do you have more than one bank account? If so, you are not by yourself. In the United States, the typical person has 5.3 bank accounts, per a survey by Javelin Strategy & Research. This includes money markets, CDs, savings, and checking accounts.
Having multiple bank accounts can help you manage your money, save for different goals, and take advantage of special offers and promotions. It can be difficult to manage multiple bank accounts to keep track of all your balances, and transactions.
Furthermore, the banking scene has shifted dramatically in recent years, with the advent of mobile banking and the collapse of traditional banking channels. According to Forbes, mobile banking has grown from 9.5% in 2015 to 34% in 2019, while bank tellers and telephone banking have declined. This means that more people are accessing their bank accounts online, on their phones, or on their desktops.
Key take aways
- Best ways to manage numerous bank accounts
- Why Should You Use Multiple Bank Accounts
- Which accounts should you have
- How to keep track of all your assets in one spot.
Five Best Practices to Manage Multiple bank Accounts
Having many bank accounts can be useful, but only if you handle them properly. Here are a few excellent practices to follow:
1. Create a consolidated financial dashboard.
One of the most difficult aspects of having many bank accounts is keeping track of all the information. You may need to log into multiple websites, apps, or statements to view your account balances, transactions, and fees.
This can be time-consuming and annoying, especially if you have multiple accounts with different banks or financial organizations.
To better manage various bank accounts, establish a consolidated financial dashboard. This application allows you to view all of your financial accounts in one place, including bank accounts, retirement funds, online banking, and more.
2. Track Account Balances
Another excellent practice for managing several bank accounts is to keep track of their balances on a regular basis. This can help you avoid fines for overdrafts, low balances, and missed payments.
You should check your account balances at least once a week, and even more frequently if you have a lot of transactions. Your integrated financial dashboard allows you to examine your balances at a glance, as well as set up alerts or notifications from your bank or app.
Tracking your account balances can help you develop good money habits like spending less than you earn, saving more, and investing intelligently.
3. Do not keep too much cash.
While having many bank accounts can help you arrange your finances, you should avoid keeping too much cash in them. Cash is a low-risk, low-return asset that will depreciate over time owing to inflation.
Instead, establish financial goals for each of your accounts and use them properly. For example, you could have a checking account for your daily costs, a savings account for your emergency fund, and another savings account for your short-term objectives.
Once you’ve met your savings goals, consider alternative strategies to increase your wealth, such as investing in the stock market, real estate, or other assets. Investing can help you diversify your portfolio, build wealth, and reduce financial risk.
4. Eliminate unnecessary accounts.
As your financial condition changes, you may realize that some of your bank accounts are no longer necessary. For example, you may have established a new account to receive a sign-up bonus, but now you’re paying monthly fees or have a low interest rate.
If you have any superfluous or redundant accounts, you should consider canceling them or moving the funds to another account. This can help you streamline your finances, save fees, and earn more interest.
However, before closing any account, make sure to read the terms and conditions, since some banks may impose a penalty or require a minimum balance or length. You should also adjust any automatic payments or deposits that are tied to your account.
5. Rebalance, As needed.
Finally, examine and adjust your bank accounts as necessary. Your financial objectives may vary over time, as should your bank accounts.
For example, you may desire to increase your retirement savings, pay off debt, or purchase a home. These objectives may need a varied distribution of funds among your accounts.
To rebalance your bank accounts, make a financial strategy that outlines your current and future goals. You should also examine your earnings, expenses, cash flow, and risk tolerance.
Then, make the necessary changes to your accounts, such as transferring money, adding new accounts, or closing old ones. You should also update your consolidated financial dashboard to reflect these changes.
6. Monitor for Fraud and Unusual Activity
With many bank accounts, the likelihood of missing fraudulent transactions or unauthorized access grows. Regularly checking your accounts for odd activity is critical for financial security.
Set up security alerts with your banks to alert you to significant transactions, foreign logins, or suspicious activity. Also, review your statements on a monthly basis to detect any problems or unauthorized charges early.
Use two-factor authentication (2FA) and strong, unique passwords for each bank account to improve security. Consider utilizing a reliable password manager to keep track of login information.
Staying cautious about security protects your money and provides piece of mind when managing several accounts.
Which Accounts Should You Have?
So, what accounts should you have if you wish to manage many bank accounts professionally? The answer is determined on your individual circumstances, goals, and preferences. However, as a general guideline, you should have at least one checking and one savings account.
Some experts promote the “envelope method” or the “Hi-5” method, which entails keeping at least five separate accounts for distinct purposes. This strategy suggests that you should have the following five accounts:
1. Income Account.
This is the account where you get direct deposits and paychecks. You might consider this your primary hub or source of income.
This account allows you to set up automatic transfers to other accounts, such as your spending, savings, or investment accounts. This allows you to automate your financial management and save time and hassle.
2. Spending account (Primary checking).
This is the account where you pay for your everyday expenses including groceries, gas, electricity, and entertainment. You can also use this account to pay monthly obligations like rent, mortgage, and credit card.
This account is typically linked to a debit card, which can be used to make purchases, withdraw cash, or pay online. You should have enough money in your spending account to pay your planned expenses, but not so much that you could earn interest or invest elsewhere.
3. Spending Reserves
This is the account where you keep any additional money that you want to set up for unexpected or irregular expenses. You can use this account for non-essential spending like presents, travel, or hobbies.
This account might serve as a buffer or cushion for your spending account in case you require more money than you budgeted for. You can also use this account to save for items that you want but do not require, such as a new gadget or a spa day.
4. Emergency Savings Fund
This is the account for your emergency fund. Your emergency fund is the money you set aside for unexpected and urgent emergencies, such as a medical emergency, a loss of income, or a significant life event.
Your emergency fund should be sufficient to cover 3 to 6 months of living expenditures, depending on your situation and risk tolerance. You should maintain this money in a separate account that is easily accessible but not overly enticing to touch.
An interest-bearing account, such as a high-yield savings or money market account, is ideal for your emergency fund. These accounts allow you to earn interest on your money while keeping it safe and liquid.
5. “Rainy Day” Savings Account
Use this account to set aside money for unexpected expenses. Your rainy day fund is money you set up for unforeseen expenses that aren’t emergencies but yet require some additional cash.
For example, you might have to pay for a car repair, a home remodeling, or a vet bill. These expenses are not life-threatening, but they might upset your budget and cash flow.
Your rainy day fund should be sufficient to cover these expenses, which may differ depending on your lifestyle and needs. You can utilize a similar account to your emergency fund, such as a high-yield savings or money market account.
6. International accounts (optional).
If you travel regularly, work overseas, or have family or friends in other countries, you may want to consider opening international or multi-currency accounts. These are accounts that allow you to save money in different nations and currencies without incurring exorbitant fees or exchange rates.
For example, you could have a US dollar account, a euro account, and a yen account. You can use these accounts to transfer and receive money, pay bills, and shop online in multiple currencies. You can also use these accounts to save money in several currencies, allowing you to diversify your portfolio and hedge against currency volatility.
Final Though
When done correctly, managing multiple bank accounts can be a wise decision. It assists you with money protection, purposeful saving, and organization. However, having additional accounts entails greater responsibility; monitoring balances, avoiding penalties, and maintaining security are crucial.
The most effective tactic? Don’t complicate things. Automate your money flow, use a small number of accounts with specific goals, and periodically look for odd activity. Multiple accounts can be used to your advantage rather than against you if you have the proper tools and a little structure.
