Should You Have Multiple Savings Accounts?

Quick Answer

You may benefit from having multiple savings accounts for different financial purposes and goals. For example, it can help to keep your emergency fund separate from savings for goals such as a down payment fund, vacation fund and other sinking funds.

A man looking at his financial statement while eating lunch at a local sushi restaurant. He is using his bank's app on his smart phone and laptop.

Multiple savings accounts are a great way to save for different goals and track your progress. Whether your goal is to buy a house, pay off debt or plan for retirement, having separate savings accounts can help you stay organized and on top of your finances. Read on to learn more about the benefits of having multiple savings accounts and get tips on managing them.

How Many Savings Accounts Can You Have?

The number of savings accounts you can have in one place depends on your bank.

Some banks limit the number of accounts you can open, and others might not. And if one bank limits the number of accounts you can open, you can open an account at a different bank. There's no limit to how many accounts you can have, especially if you spread them across various financial institutions.

The number of savings accounts you should have depends on your financial needs and goals, however.

Generally, it's recommended to have at least two savings accounts—one for short-term savings goals and one for long-term savings. Consider having separate savings accounts dedicated to each goal, like saving for retirement or building an emergency fund. This way, you can easily track your progress toward achieving each goal without having all of your savings pooled together in one place. Ultimately, whatever works best for you is the best number of savings accounts.

Pros and Cons of Multiple Savings Accounts

Having multiple savings accounts can provide various benefits; however, there are some potential drawbacks. It's a good idea to be aware of these before deciding whether multiple bank accounts are right for you. Here are some advantages and disadvantages of opening multiple savings accounts.

Pros of Having Multiple Savings Accounts

  • You can track your progress towards each goal more easily without having them pooled together in a single account.
  • You can keep your emergency fund separate from other funds, so you know you're covered and reduce the temptation to dip into it.
  • Your money can grow faster because you can hunt for higher-yield savings accounts and benefit from better interest rates.
  • You might reach your goals faster. Having separate savings accounts for different goals allows you to prioritize which savings are most important to you at any given time and focus on achieving those first.
  • You'll have more flexibility when managing your money. You can save as much or as little as needed for each goal without compromising other savings plans.

Cons of Having Multiple Savings Accounts

  • It could be hard to keep track of your savings and monitor your progress toward achieving each goal. It also means you might have more monthly statements to track and balances to manage, not to mention the annoyance of juggling multiple login details or even unintentional overdrafts due to confusion over balance availability across various accounts.
  • You could lose savings interest if your money is spread across several accounts instead of pooled into one.
  • Some banks charge minimum savings fees. Additional savings accounts mean more fees, as each account type has its own fees or minimum balance requirements.
  • It can be counterproductive. Having too many savings accounts can cause distraction from the actual savings goals themselves if you focus too much on managing the different accounts instead of saving money and building wealth.

There are some great perks if you're considering using multiple bank accounts but keep sight of the risks involved. Take care when weighing the pros and cons to find a balance that works for you.

How Many Savings Accounts Do You Need?

If you're going to have multiple savings accounts, you likely have different goals in mind to save for. Here are a few common ones:

Prioritize Emergency Savings

If you need help figuring out where to start or which goal to prioritize first, start with the emergency fund. It may be counterintuitive, but ensuring you have a solid emergency fund helps protect you if you have multiple savings accounts and are saving towards long-term goals like retirement or a house down payment.

Keeping three to six months' worth of expenses in an accessible account will ensure that unexpected costs—like needing new tires or your furnace going out—don't prevent you from reaching your other savings milestones in time.

Save for Retirement

In addition to having liquid savings accounts, it's also helpful to have tax-advantaged retirement savings accounts like a 401(k). Investing in this type of account can help you save money on taxes now and enjoy the benefits when you begin taking distributions during your retirement years.

Contributions to these accounts are typically made with pretax dollars, meaning you only pay taxes on these contributions once you withdraw them for retirement. Furthermore, any interest or earnings from these savings are not taxed either.

Consider an HSA

Another type of tax-advantaged savings account is a health savings account (HSA). HSAs are designed for people with high-deductible health plans and are used to pay for qualified medical expenses throughout the year.

Contributions to an HSA are also made with pretax dollars, allowing you to save on taxes while building a fund dedicated solely to medical expenses. And, any withdrawals from an HSA for qualified medical expenses are exempt from taxation—having an HSA is an excellent way to save for medical expenses throughout life.

Ultimately, having both liquid savings accounts and tax-advantaged retirement accounts like 401(k)s and HSAs can provide extra peace of mind when it comes to savings and preparing for the future. Whether you're planning for short-term goals like buying a house or long-term goals like retirement, having multiple savings accounts and utilizing tax advantages can help you achieve those goals faster while giving yourself added financial security along the way.

How to Manage Multiple Savings Accounts

Managing multiple savings accounts can be challenging, but getting organized and choosing an approach that works with your lifestyle can make it a lot easier. At a baseline, you need to:

  • Clarify your savings goals. If you only have three goals, it probably won't make sense to have five savings accounts, for example.
  • Choose a way to keep track of each account.
  • Know how much money is in each account.

To stay organized with multiple savings accounts, you can take a few approaches:

  • If you like to be hands-on, you might create a spreadsheet that includes the savings categories, savings goals and current balances for each account.
  • If you're tech-savvy, you might be more interested in budgeting apps that provide updates, management tools and categories for you automatically.
  • If tracking multiple accounts makes you anxious, you'll be glad to know that some financial institutions, especially online banks, have savings account tools that allow you to create "buckets." This way, even though you're only managing one overall account, you can simultaneously visualize your progress on multiple goals and dedicate different savings amounts to individual goals.
  • If you have a place for everything (and put everything in its place!), you'll appreciate building a budgeting routine.
  • If you can't remember where your keys are, automation is for you. Make sure you don't miss any payments or contributions for your savings accounts by setting up automatic transfers from your checking account into each savings account regularly. If you don't have a steady income and or want to play it safe, you can set up reminders to transfer funds manually. Automating your savings is also a great way to avoid the temptation to spend money instead of saving it.

The Bottom Line

Having multiple savings accounts can make managing your finances easier and more effective if done correctly. Start by setting up savings goals for yourself, then open appropriate savings accounts to match those goals. Make sure to stay organized and track all the details associated with each account, automating payments where possible. Make the most of the money you do have so you'll have more to save. With some planning and dedication, you can quickly reach your savings milestones on your way to financial security.