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Having multiple savings accounts

multiple piggy bank savings accounts

Have you ever heard of the terms underbanked or overbanked? Being underbanked means not having a single bank account. More recently, the phenomenon of being overbanked, that is having an excessive number of bank accounts, has arisen.

So how many savings accounts is too many? As with most things, there are pros and cons to having a large collection of savings accounts.

Pros

1. It’s now easy to do

Why do some of us have 10 to 20 bank accounts rather than the one or two that sufficed for our parents? The rise of internet banking has made it a lot easier and cheaper to have multiple accounts. From the comfort of your home, in the space of a few minutes, you can set up a bank account that you can then make deposits into and withdrawals from in the time it takes to press a few keys.

Given the low overheads involved in servicing online savings accounts, many banks provide them at little to no cost to their customers (though always check what fees apply before opening an account).

2. It’s motivating

When multiple-account holders are questioned about why they spread their money around, they typically reply that having different accounts helps them save for different goals like saving for a holiday.

In the past, people would employ the ‘envelope system’. That is, when they received their pay, they would distribute it amongst a series of envelopes – one for the mortgage, one for groceries, one for the Christmas holiday and so on.

Multiple bank accounts are the 21st century equivalent of the envelope system, with the bonus that you’re earning interest and don’t have to worry about someone stealing your envelopes.

Cons

1. It’s an administrative headache

Granted, banks make it as easy as possible for customers to keep track of their numerous accounts, often offering online tools such as downloadable spreadsheets, but the reality is having 20 accounts rather than two makes your financial affairs more complex, especially if they’re spread across different financial institutions.

If you share finances with a partner, you also have to take into account whether they’ll be willing to educate themselves about the range of accounts and commit to putting money into and taking it out of the right accounts at the appropriate time.

2. Maximising interest

It’s possible to have multiple accounts all earning high interest, but if you have your money spread across a plethora of accounts, especially ones that allow you to withdraw funds at any time without penalty, it’s likely you’re earning less interest than you otherwise might.

You may be better off having one ‘everyday’ account for ongoing expenses and getting the best return possible on the rest of your money by putting it into a high interest savings account or term deposit. Then you can allow the magic of compound interest to do its work.

The number of accounts you need will come down to your particular circumstances. As a general rule, you should have as many as you need – but none that don’t serve a clear purpose and make sure that you don’t use your transaction account for saving.