35% of Americans Have More Than One Savings Account, But How Many Do Experts Say You Really Need?
Having a savings account, especially if it’s a high-yield savings account (HYSA), is an effective way to grow your money while keeping it safe and accessible in case you need it. Given this, it’s not all that surprising that so many people — roughly 83%, according to a recent GOBankingRates survey — have at least one savings account in their name.
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While having a savings account is generally considered a good idea, what’s not so clear is how many accounts you should ideally have and why.
According to our survey, approximately 47% of Americans have only one savings account, while 35% have two or more savings accounts. A small percentage of people even have upwards of five accounts.
You Should Have Two or More Savings Accounts
While the exact number of accounts you should have depends on your own circumstances, most experts agree that you should have at least two. However, you may want to start by opening one for your emergency savings fund.
“It’s essential to have at least one savings account,” said Mark Henry, founder and CEO of Alloy Wealth Management. “Your primary savings account should be a place to build an emergency fund — which should be everyone’s No. 1 financial priority. Your emergency fund should contain enough savings to cover at least three to six months of expenses and should not be used for any impulse purchases or non-urgent expenses.”
After you’ve maxed out your emergency fund, Henry suggested opening a second account. This is so you can start saving up for other short- and long-term goals.
“Once you hit your emergency fund savings goal, you may want to open another account to save for other goals, especially if you struggle to compartmentalize your money or tend to impulsively dip into savings,” Henry said. “How many savings accounts you open beyond one for emergencies and one for other goals is ultimately a personal decision.”
You Should Create Separate Accounts for Different Goals
For some people, two accounts might not be enough.
“Ideally, an individual should consider having multiple savings accounts, each designated for a specific purpose,” said Taylor Kovar, CFP, CEO at TheMoneyCouple.com and Kovar Wealth Management. “This can range from two to five accounts, depending on one’s financial goals. Having separate accounts helps in tracking progress toward each goal and prevents unintentional spending from a consolidated pool of funds.”
Here’s one way you might want to separate your savings accounts, according to Kovar:
Emergency fund savings account for unplanned expenses
Short-term goals account for upcoming planned expenses (e.g., holidays or vacation)
Long-term goals account for later planned expenses (e.g., down payment on a home)
Retirement savings account for retirement purposes only
General savings account for undesignated savings purposes
There’s No Magic Number
Because everyone’s financial situation, goals and lifestyle are different, there’s no hard and fast rule to how many savings accounts you should have.
“When deciding how many savings accounts to open, it may be helpful to think of them like piggy banks, change jars or envelopes,” said Steve Goodman, managing director and head of product for consumer banking at JPMorgan Chase. “Some may choose to open several accounts at one time and allocate each one for a different purpose. This can be helpful in keeping track of your savings towards each goal.”
While some people limit themselves to one or two savings accounts, there’s no maximum number of accounts you can — or should — have. What’s more important than the number is making sure you can keep up with them all.
“There is no specific number of accounts that is considered too many,” Goodman said. “However, it can become increasingly more difficult to keep track the more you have under your name. In addition to the need for more upkeep, you can lose out on savings interest by having multiple accounts. Generally, you will typically earn less interest on several smaller accounts than one big one.”
What To Consider When Opening a Savings Account
Not all financial institutions or savings accounts are created equal. So, before opening multiple accounts, here are several factors to consider.
Availability of a ‘Bucket System’
Some banks offer a “bucket system” that lets you separate and track your savings in one convenient place. If you have difficulty managing multiple accounts, this might be the first thing to look for.
“You need a way to keep track of different goals and accounts in your savings,” said Jay Zigmont, Ph.D., CFP and founder of Childfree Wealth. “I tend to prefer using companies such as Ally Bank that offer a ‘bucket system’ or [something] similar. With a bucket system, you can have one high-yield savings account but set aside separate buckets for emergency savings, travel, home ownership and the like.”
Interest Rates
“You will also want to check on interest rates,” said Gina Knox, CEO of Gina Knox Coaching. “For example, Ally Bank has about a 4% interest on a standards savings. I see other banks with 1%.”
The higher the rate, the more your savings’ growth potential.
Henry added, “Most basic savings accounts will have an interest rate of less than 1%, but it could still be worth it to shop around before committing to a bank. I highly recommend opting for a bank with a high-yield savings offering, so you can easily move your money from checking to savings to high-yield in one place. If you do opt to open a high-yield savings account, be sure to compare interest rates, as some banks offer up to or over 5% APY.”
Fees
Opening a bank account — whether it’s checking or savings — could come with certain fees, so be aware of these.
“Common bank fees include overdraft fees, transfer fees, ATM fees or fees for falling below a certain account balance,” Henry said. “Look for a bank with low or no fees, especially if you struggle to save or manage your money.”
FDIC Insurance
“Ensure the bank is FDIC-insured, which means your deposits are insured up to $250,000,” Kovar suggested.
An FDIC-insured institution will keep your money safe against the possibility of bank failure.
Savings and Budgeting Tools
“Some banks offer features like automatic transfers, budgeting tools or round-up savings options,” Kovar said.
This can be especially helpful if you’re looking for help managing other aspects of your finances — like your monthly budget.
Brick and Mortar or Digital Institutions
Many financial institutions operate solely or partly online, while others still maintain a traditional in-person experience. Consider which option works better for you when choosing a bank to keep your money.
“While some people may be more comfortable with a bank with plenty of physical branches, they are not entirely necessary anymore with current technology,” Henry said. “Banks that are entirely online or have very few physical branches may have lower fees or better interest rates because they face [fewer] overhead costs. An entirely or mostly online bank may also offer a better website or app that makes it easy to keep track of your finances, cash checks online, send alerts, prevent fraud and move money between accounts.”
You May Want To Move Beyond Savings Accounts
Having several savings accounts is a great way to get started with securing your money, but there may come a time when switching to a different kind of account is better for growing your wealth.
“While having a savings account is essential for financial security and short-term goals, it may not always be the most effective way to grow wealth in the long term,” Kovar said. “The interest rates on traditional savings accounts are often lower than the rate of inflation, meaning the real value of your money could decrease over time. For long-term goals and maximizing returns, individuals should also consider other investment vehicles like stocks, bonds, mutual funds or real estate.”
Be aware that these options tend to come with a higher risk than traditional or high-yield savings accounts. If you’re looking for higher returns and less risk, you might want to open a certificate of deposit (CD) in addition to your regular savings account, Goodman said.
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This article originally appeared on GOBankingRates.com: 35% of Americans Have More Than One Savings Account, But How Many Do Experts Say You Really Need?
