September 2015
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Should You Have More Than One Savings Account?
We answer the question for you and explain why

Savings accounts are not just for use in an emergency. Actually, they are best utilized when allocating money for large purchases, such as a home or a new car. However, to properly save money for these different goals, you will need differing savings accounts. 

 

Neal Frankle, a CFP and blogger at WealthPilgrim.com, says that fuzzy savings goals usually don't pay off, resulting in chaotic finances. Without targeted savings accounts, people are more likely to raid their emergency savings accounts for big purchases. Instead, specific savings targets spur good spending behaviors because you must monitor your savings and spending to meet your goals.

 

Here are four more reasons you should have multiple savings accounts:


Internal transfers are usually fee-free

 

Sign up for direct deposit through your employer for your paycheck to be electronically deposited into your checking account. Then, schedule an internal transfer for any extra money that you don’t need to pay your monthly bills with to a base savings account. From there, divide that money into your additional savings accounts based on your goals. Remember, your base account should generally maintain a balance of three to six months of pay at any given time in case of emergency.

 

Your savings goals can be tracked

 

Using online banking, your progress toward reaching each individual goal can be easily traced. You can also utilize spreadsheets to follow your goals. In fact, more and more financial institutions are offering online tools such as downloadable budget spreadsheets and weekly spending journals to help depositors.

 

Prioritizing or tweaking accounts is easier

 

Some goals can be fast-tracked over others by using targeted savings accounts — for example, if certain goals are time sensitive or carry a heftier price tag. Multiple accounts make it easier to meet goals than by just lumping money into one big account; plus, as mentioned above, this money can be easily organized with the click of the computer mouse or a tap on your smartphone.

 

The reason multiple accounts make the savings process streamlined is simple: It makes the goals themselves, along with the amounts of money needed to meet them, clearer. You will be better able to tell how much money you need for each individual purchase and can divide that by the amount of time you are allotting for yourself to determine how much you will need to save per month or per week, for instance.

 

Of course, once you accomplish one savings goal, any of that money can be diverted in the future to more quickly reach the goal of another targeted account.

 

You can play the yield game more simply

 

For more advanced bankers with a solid financial bedrock, multiple savings accounts can be a savvy way to play the higher-yield game because you can shift money from lower-yielding bank accounts into higher-yielding bank accounts. Furthermore, you can take advantage of websites such as Betterment.com that have online investing tools. You can link your accounts with the site’s secure tools to direct savings into preselected Treasury bond exchange-traded funds.

 

Put plainly, yes, you do want multiple savings accounts because it will help you reach your goals more quickly and efficiently, thanks to the numerous organization and financial planning tools that are available for savers these days.


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Published by Central Bank of Kansas City
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Disclaimer - All content contained in this newsletter is for informational purposes only and should not be relied upon to make any financial, accounting, tax, legal or other related decisions. Each person must consider his or her objectives, risk tolerances and level of comfort when making financial decisions and should consult a competent professional advisor prior to making any such decisions. Any opinions expressed through the content in this newsletter are the opinions of the particular author only.  This is an advertisement.
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