If you have only one bank account, you may be wondering if it’s worth opening another one. On the other hand, if you already have multiple bank accounts, you’re probably reading this because you want to know if it’s advisable to lessen the number of your accounts to simplify your finances.
Is there an ideal number of bank accounts an average person should have? What are the pros and cons of having more than one bank account? In this article, we will talk about how having more than one bank account can help you manage your money better. We will also share recommendations on how to use multiple bank accounts effectively. This way, you can also determine whether you have too many bank accounts open.
How Many Bank Accounts Should I Have?
Depending on who you ask, you will get many different answers. If you ask the bank representative where you’re banking right now, they will probably tell you that you should only have one bank account and entrust all your money to their institution. If you speak to another bank, they will tell you that it is super essential to open another account with them even if you already have six other bank accounts already open.
So should you have more than one bank account? The short answer is yes. You should have more than one bank account. As the old cliché goes: “Don’t put all your eggs in one basket.”
Now, is there really an ideal number of bank accounts you should have? Unfortunately, there is no ideal number because the answer to how many more bank accounts you should have will depend on your personal financial lifestyle. Meaning, it will depend on how you use your money, how you pay for your expenses, how you get paid, and many more.
At the bare minimum, you should have at least two bank accounts that function differently. It doesn’t matter if you don’t have a lot of money to move around, you should still have more than one bank account.
While there is no “ideal” number, there is an ideal scenario when it comes to how many bank accounts you should have. Ideally, you should have a separate account dedicated to a different function.
Types Of Bank Account According To Function
How do you designate a separate bank account according to function? Will you not end up having too many bank accounts? Not really. The number of bank accounts that you need to have will depend on your financial activities and how you use your accounts.
So how does this work? Think of your bank accounts as physical money envelopes. When there were no credit cards, debit cards, or online payments yet, a lot of people would divide their cash into separate envelopes. One envelope can be to pay bills, one envelope for saving, and another envelope for shopping money, and so on. This envelope strategy makes it easier to budget, save, and not overspend.
Every bank account that you have is like a separate money envelope dedicated to a certain function. When you have separate bank accounts that function differently, this could help you handle your finances better.
It is difficult to define the exact number of bank accounts a person should have. It really depends on your spending habits. For example, a person who only uses bank accounts to receive money and uses other financial tools like credit cards, Venmo, PayPal, or prepaid cards may not need as many bank accounts as someone who uses bank accounts to pay for everything.
To give you some examples of how multiple bank accounts could work, we will illustrate different scenarios on how you can use your bank accounts if you have 2, 3, or 4 bank accounts.
Two Bank Accounts
Scenario A: You pay a lot of bills and saving money is not a priority at the moment.
Bank Account 1: Primary
Your primary account will usually be a checking account to receive money, receive your salary, or government benefits. This will be your source of funds when you need to spend money. This will also be the account where you’ll keep the money left over for expenses after allocating the money for your bills.
Bank Account 2: Bills
If you make a lot of bill payments using your bank account, it is better to have a separate bank account for this purpose. Use this account to set-up automatic payments for mortgage, car payments, insurance, utilities, online payments, etc.
Scenario B: You want to save money and don’t use your bank account for expenses.
Bank Account 1: Primary
If you don’t really have a lot of bill payments or you prefer using your credit card for expenses, then having just one bank account to receive and make payments is fine. However, it is not recommended to keep all of your money in just one bank account and risk losing it all.
Bank Account 2: Savings
If you have left over money at the end of the month, transfer them into a separate account. Take note that when we say “savings”, that does not necessarily mean that you need to open a high-yield savings account in a bank where there is a minimum maintaining balance or withdrawal limit. You can have two checking accounts but use one of these checking accounts to put the extra money that you have. Don’t use your secondary checking account for daily transactions. But since it is also a checking account, you can use it in case of emergencies.
Three Bank Accounts
Bank Account 1: Primary
You can use this to receive money or your “source of funds” bank account.
Bank Account 2: Bills
This will be the account where you transfer the money needed to pay your bills and expenses.
Bank Account 3: Savings
This will be a separate account to put the money that you save. Many people open a separate account if they are saving for a major purchase like a house down payment, travel fund, or a major luxury purchase.
Four Bank Accounts
Bank Account 1: Receive
This will be your “source of funds” bank account where you receive money.
Bank Account 2: Bills
This bank account will be purely for bill payments.
Bank Account 3: Spending
This will be a separate bank account where you’ll allocate spending money for daily expenses such as groceries, online payments, transportation, etc.
Bank Account 4: Savings
This will be your separate account for storing your savings.
Advantages Of Having More Than One Bank Account
Is it good to have multiple bank accounts? There are several advantages of having more than one bank account. Below are just some examples of how you can benefit from having multiple bank accounts.
1. You Can Have a Backup Plan in Case Your Primary Bank Account Stops Working.
If you only have one bank account, what will you do if it suddenly stops working? This could happen due to several reasons like if the bank system is down or if creditors levy your bank account. If you have important transactions or bill payments to complete, not having a secondary bank account can be a big hassle. Having multiple accounts with different banks can give you a fallback in case of these situations.
2. It Makes it Easier to Manage Your Budgets.
You may find that it is easier to keep track of expenses if your money is split into different accounts that are designated for a different purpose. When you only have one bank account and all your funds are there, you are at risk of overspending money that should be allocated to other things. If you allocate the funds into separate accounts, you can ensure that you have enough funds to cover your bills and expenses.
3. You Can Keep Your Savings Intact
Having a separate account for your savings is also a good way to prevent yourself from impulse buys and overspending. This way, you can grow your savings and not be tempted to spend the money on trivial things.
4. Having More than One Bank Account is Safer in Case of Theft.
Let’s say you only have one bank account where you keep all of your money. If someone steals your debit card information and drains all your funds from your bank account, then you’re left with nothing. If you have more than one bank account and your money is separated, there is a lower risk of losing everything in case of theft. Even if thieves get their hands on sensitive information like passwords or pin numbers, they still won't be able to steal anything else from you because they don't know about any other account numbers.
Disadvantages Of Having More Than One Bank Account
If there are benefits to having more than one bank account, there are also disadvantages. Below are just some examples of how having more than one bank account can have its downsides.
- You need to devote more time to managing different bank accounts including setting them up, online banking apps, multiple log-ins, talking to bank representatives, paying fees, etc.
- Transferring between bank accounts can take time and may incur fees in some instances.
- If you have multiple bank accounts but you are not using them for separate functions, it may be hard to keep track of your spending.
Does Having Multiple Bank Accounts Affect Your Credit Score?
In case you are wondering whether having multiple bank accounts will affect your credit score, the answer is NO. The number of bank accounts you have is not a factor when calculating your credit score. It does not matter whether you have one or five bank accounts, your bank information will not be reported to credit bureaus. Your credit score will be calculated based on your debts like credit cards, mortgage, and loans – not your bank account. The only way your bank account will affect your credit score is if you have unpaid bank overdraft fees (when you over withdraw due to insufficient funds) and you don't pay these fees.
Manage Multiple Bank Accounts Effectively
Having more than one bank account can greatly benefit you. However, you have to make sure that you are using your bank accounts effectively. Assigning a different function for each bank account can make it easier for you to manage your money and keep track of your finances.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
