The Benefits of Multiple Banking Accounts

bank vault

I have always spread my money around in multiple accounts. I use multiple checking, savings, and investment accounts, all marked for different purposes. Some are at the same institution, but I also use several different banks, depending on my needs. When I started making money years ago, spreading it around was simply the easiest way for me to track my spending and make sure that everything got paid out of my tiny salary. I never thought that this was a particularly special or great idea until recent events showed me just how smart this idea really was.

A thief stole my debit card number and drained the checking account to which it was tied. Fortunately, because my money was spread around in several accounts and none of my other accounts used that debit card, I was able to transfer money from other accounts to the compromised one to cover any shortfalls until the bank got everything straightened out and returned my money.

When the same thing happened a few weeks later to a friend who had all of her money in one account, she was devastated by late fees and bounced check fees that her bank would not reverse. All of her money was gone. She had nothing for weeks until her bank reluctantly agreed to replace her money. I couldn’t help but think that for a strange quirk of financial management, I could have been in the same situation. I saw that my method reduced a problem that could have become a financial disaster to a mere inconvenience.

This close call with financial disaster made me think about my tactic of spreading money around and what other benefits it has given me over the years. In addition to the debit card fiasco, keeping multiple accounts at multiple banks has cut my risk of suffering hardships due to identity theft in other ways. Recently, one of my banks had their computer system hacked. While nothing has come of it (yet), should someone get my information they cannot destroy my finances completely. They can wreck what I have at that bank, but they can’t get to the others. If I had all of my money in one institution and this happened, a hacker could wipe me out with one keystroke.

By far, the biggest benefit to spreading it around is how easy it makes financial management. On payday, preset amounts of money are directly deposited into various accounts, each marked for specific purposes. The first chunk of money goes into my 401k and IRA. Out of sight, out of mind savings means I never spend the money I’ll need later. I don’t miss it because I never had it to begin with. The same is true for the money that is deposited into my two savings accounts. One is for my emergency fund and the other is short term savings for travel, appliances, cars and Christmas. I don’t see that money, so I’m not tempted to spend it. It goes into the accounts and waits for me to need it.

The remainder of the money is deposited into two checking accounts. The first is for paying the bills. Mortgage, insurance, taxes, and utilities all come out of this account and I don’t touch it for any other spending. I determine how much I need to deposit each payday by adding up my yearly expenses in these categories and dividing that number by the twenty-four pay periods in a year. It took a little work to find this number at first, but now I only need to make minor adjustments as expenses increase or decrease. I simply change the amount being deposited and rest easy knowing that my bills are covered. It may mean less money for fun, or that my travel savings gets reduced a bit, but I know I won’t fall short when a big bill is due.

The other checking account gets whatever money is left over and it is for groceries, gas, daily expenses, and fun, frivolous things. I always know how much I have to spend in my daily life because the bills are paid from another account and savings is already taken care of. I never stand in a store and think, “Well, I have to pay the phone bill and the water bill, so that will leave me with $X. And then the insurance is due. But I need to put some in my IRA. Can I afford this item?” I’m spared those mental gymnastics because whatever is in that daily account is fair game for spending without fear of missing a bill payment or shortchanging my future. Spreading it around has made it much easier for me to track my spending and my savings.

Keeping multiple accounts at multiple financial institutions also makes me a better consumer. I am in a better position to take advantage of favorable policies and interest rates. When one bank where I had my savings dropped their interest rate, I quickly transferred a large amount of that money to my other bank that was paying a higher rate. When the bank where I had my daily checking account started charging for checking, I moved that money to the bank that had my other checking account. When I’ve told branch managers of my system and why I’m leaving them, I’ve often been able to get “grandfathered in” to the old policies so that they can keep my business. I’ve never felt “stuck” when a bank makes an unfavorable change because I know I can easily move my money to another bank with more favorable policies. I also use that leverage to negotiate for better treatment at the offending bank.

Certainly it’s not wise to spread your funds around to so many accounts and banks that you don’t know where anything is and you can’t keep track of it all. Or to spread your savings so thin that you can’t capitalize on the interest a larger balance earns. However, having multiple accounts has some hidden advantages that I didn’t realize until circumstances forced me to think about it.

Image courtesy of twoeightnine

This entry was posted in Budgeting, Personal Finance, Saving Money, X Files. Bookmark the permalink.

17 Responses to The Benefits of Multiple Banking Accounts

  1. Dakin says:

    I liked your ideas. I recently opened a etrade account for a couple of the reasons you lists. I’m personally tired of getting dragged over the coals from PNC and their fees. Now, after reading your article, I can fine tune what I’ve done. I’ll still keep PNC, just for the sake of having a local bank I can cash a check at in a hurry. But with etrade’s rates, I’ll keep most of my savings in there. Thanks again!

  2. Linda T says:

    I like your ideas for a number of reasons —

    A few years ago there were some banks in the northeast that went under. It actually took several years for FDIC to replace funds but mortgages and othere bills were still due.

    Another reason I love it is the budgeting simplicity. We have reached our financial goals and have become a little lax in the way we budget – Your idea will give us an easy way to refocus.

  3. MikeVx says:

    I’ve been doing multiple accounts for years. My household account is used for all the usual stuff, then I have specialty accounts. Two checking accounts for debit cards (risk minimization) (my main account has only an ATM card on it). A checking account for a personally-managed property-tax escrow function. I just write the checks off that account twice a year.

    Then there is the ING account, where I stow money for saving, goal-oriented savings, the emergency fund and the investment buffer.

    At least for me, Murphy has a much bigger target to aim for.

  4. Brian says:

    Idea is great but your system is way too complex? I agree with the direct deposit for the IRA’s but I do not see a reason for a multiple savings and checking. I have a ING savings (currently 4.9%) which I keep all of my money in except for a couple of thousand in checking to pay bills. It is very easy to transfer funds from my bank to ING or vice versa. ING is also FDIC insured and extremly secure so I have no worries about cracking my account.

    In summary, I would keep high amounts of cash in a high yield savings account and keep as little as possible in one checking account which is earning little to no interest. I find it pointless to seperate all living expenses which include mortgages, insurnace, grocery, movie rentals, etc. If this is the case I would suggest getting a software program to help you track your spendings.

  5. I would probably stick with Brian here: I don’t really think that having two savings and two checking accounts is necessary. The reason I think having one savings and one checking account is just fine as far as security goes because you really shouldn’t keep that much in those accounts anyway. There are plenty of financial instruments where you money will have a better home: CDs, bonds, mutual funds, stock market, you name it.

    I think Jennifer’s set up would be most beneficial to people who need to see physical separation of funds into different accounts: CAN spend from this accounts, CAN’T spend from this account. May not be for everybody, but there are plenty of people who could benefit from such a system.

  6. Jo says:

    I used to employ this method, but had to scale back; it got too difficult to keep track of in order to make sure I wasn’t missing something.

    I now use one checking account for all my monthly bill paying. This is where my direct deposit goes. I use a register that is in spreadsheet format from Very handy, as well as the checking account being an interest earner for me (4.03% APY). So, if there is money left over at the end of the month, I can shift this to savings and to a category labeled “Cushion” since my goal is to build up a cushion as a means of overdraft protection.

    I do have a money market account at EverBank that I do not touch. This is where I save my quarterly health insurance premiums. When it’s time to make a payment, I just write a check and I am set for three months. But each month I do set aside the equivalence of one month’s premium in the account to earn interest. I have an extra amount attached to that transfer for a separate category.

    I have to admit that when I first started this, I honestly believed it was just me. Obviously, this is not the case. A method to the madness, I suppose.

  7. i started doing this system about a year ago and i like it, i dont think its too complex and i think that if it doesnt work for you, then it doesnt, but for some people it DOES work. i have always had a bills account which is linked to my main account. i deposit a portion each week which should account for all my bills through the year. i also have an ING account and a bankwest account. my ing account is used for my EF and holiday money, and my bankwest account, which has a higher interest rate, has the money i am using to save for a house deposit. i keep the largest sum in this account because it is at 7.15% at the moment. my ING account is at 7%. my bills account also is at 6.85%. the amounts in these last two are only a couple of hundred dollars at each time, so it doesnt bother me and i would rather have them separate so i know exactly which is which.
    also another trick i have picked up is, when interest is calculated on the last day of the month, the very next day i transfer most of the funds from all these accounts into my loan account, where interest is calculated on the 8th of the month, so effectively i save a few bucks here too. then i just trasnfer it back later. and before you say anything, NO, this doesn’t cost me ANYTHING. 🙂

  8. Gail says:

    We have several accounts and it does help with organization. When I was still working and had to drive alot, I got reimbursed for mileage. I had a seperate savings account just for my car. When I got each reimbursement, I subtracted out what I had actually spent in gas and put the rest in the account. In no time whenever I had a car repair needed, I had the money in the account to cover it instead of that horrible deep down feeling of doom. My co-worker used her mileage as an extension of her paycheck and never saved any of it–she has subsequently gone bankrupt (obviously for more than car expenses). I knew with the amount I was driving it would take a toll on the car and she ignored it.

    I find it interesting that several commenters liked the idea and did much the same themselves and then others think it is a lousy system, or at least not needful. My feeling is that anything that works to keep a person solvent fiscally is worth doing, even if they miss some interest. At least they are thinking about and working to be sure all bills are paid and money is being saved. It is of course, important to get the highest interest rate possible for long term savings such as retirement, but day to day expenses doesn’t necessarily need the high interest, it just needs to be there when needed.

  9. A Marino says:

    I could have written this article because it sounded so much like what I do. I have found lately that it is better to deposit paychecks into the bank money market fund each week that gets a good rate and once a month, transfer money to the house checking account to pay the smaller bills. I can use 3 checks from the money market account and they are usually the larger checks.

    I transfer any money or savings to any online savings accounts. What a great concept in spreading your money around in case one account got sabotaged. I never really looked at it that way.

  10. Linda T says:

    reflectionite – how are you getting those interest rates? I know they are different in different areas, but those are great rates and I haven’t seen anything like that where I live or on th ING web site.

    Can you elaborate? I am really interested.

  11. ariyana says:

    Having mulitple accounts are great 4 me, especially when it comes to the time of emergency fund needed and where you have one wher all you do is deposited with one checking and one saving from the same bank institution you get tempted to withdraw from your saving when times get a young person I find it very helpful so I know that I am still saving a little when spending and not having to dabble in the other 🙂 good article. everyone is diffrent i feel like if you can handle the multiple task and it help fine and if you can’t then kepp doing what’s best for you. 🙂 thanks

  12. linda t: sorry i didnt know you had asked that q months ago, but in case you ever check back i will answer the question anyway!
    umm i thought they were pretty standard interest rates? now they are even higher, one at 7.15 and the other at 7.75%.
    they are just the standard ING and Bankwest accounts, nothing special. my commonwealth netsaver account is just at 6.95% now.

  13. maria says:

    I read your note with great interest and discover that it is really good as i too maintain multiple account in different bank. so as to manage my account very well especially when the policy of a bank is so harsh

    Thanks and well done

  14. Starter says:

    Hi folks,

    I just red the idea and I was really interesting in doing some changes. Currently, I am doing my masters and I have never been employed in US. So, I can say that I am not yet in the system. Since I live with ma families till now, they are the one who cover the bills. But now I start saving from what I get from them, like form transportation, for meals, etc… And after, 10 months I will be able to get a job in IT industry when I finish my masters. So before I enter to this credit system (some of them call it “the rate race”), I wanted to make sure that I arranged every of my accounts(even including investment). What should I have to do until that (about my saving and investment ideas).

    Thank you

  15. Little Johnny says:

    Go Fidelity!

  16. Tutaj says:

    Breaking your expenses in separate steams by setting up different savings accounts is a little too much for me. I like the argument about being a better consumer. For me it means having access to a larger palette to products and services, especially when one bank changes its policies.

  17. Pat says:

    What tool do you use to centrally manage all of your banks accounts? It must be a little difficult to have to log in to multiple bank accounts to check balances, etc. Do you use any particular web interface tool that allows you to see the balances of each bank account?

Leave a Reply

Your email address will not be published. Required fields are marked *