Separate bank accounts is so helpful with managing money.
It helps to divide up money for certain purposes and not accidentally used.
It is a great budgeting trick! Probably my favorite one 🙂
This is helpful for people prone to overspending, turning to debt first, or those just needed money out of their main bank account.
Is it a good idea to have multiple bank accounts? Short answer – yes!
The questions remains… how many bank accounts should I have? how many bank accounts can I have? Is it okay to have more than one bank?
Don’t worry… we will dig into each of these questions and provide answers so you can get started today.
Before we dive in, let’s talk uncover the types of savings accounts.
Types of Savings Accounts
It is important to know the various types of savings accounts in order to maximize your return on your money.
Many of the must needed accounts you need are for short term use, so you don’t want to tie them up in long term investments. But, at the same time, money under the mattress is actually losing in value.
Here is a list of the money common saving accounts:
- Savings Account (traditional)
- High Interest Savings Account (online)
- Money Market Accounts
- Certificate of Deposit (CDs)
- College Savings Accounts (529 plans)
- Individual Retirement Accounts (IRAs or Roth IRAs)
- Employer Sponsored Retirement Accounts (401k, 403b)
The types of savings accounts are listed in this order for a reason. They are listed by the ability to access your money.
With a savings account, you can access your money at any time. But, it comes with a lower interest rate. However, with online options like this one, you can earn a higher interest rate.
Money market accounts tend to have higher interest rates than savings accounts, but you are limited to the number of transfers in and out of the account each month.
On certificates of deposits or CDs, your money is tied up for the specified period. Some CDs carry higher interest rates than money markets or high interest savings accounts. You just have to decide if you need access to the money during the set time frame and what the penalty is if you need your money.
The last three types of savings accounts are for long term planning – college savings accounts and retirement accounts. This is savings set aside and won’t be accessed for a long time. Traditionally, they aren’t savings accounts; they are considered investment accounts.
What is My Checking Account For?
You might be wondering how does your checking account fit into the picture?
A checking account is a separate bank accounts for bills. Many times it is a joint account for bills.
Your checking account is the account for paying all of your bills each month. Also, it will cover any spending.
It is where your paycheck goes. Then, money is moved into the various must-needed bank accounts. Money is left in the checking account to cover your monthly bills and spending.
Understand all of the documents you need when opening a checking account.
Sometimes each spouse will have their own checking account for their personal spending and a main joint family account to pay bills.
Here is a great option with NO ridiculous bank fees (no minimum balance requirements, service fees, foreign transaction fees, no overdraft).
How Many Bank Accounts Can I Have?
As many as you want.
In all honesty, that number is completely up to you.
Yes, having multiple saving accounts with different banks is completely okay. Many savvy finance people do it every day.
The key is not to open so many bank accounts in different locations that you lose track and things become confusing!
How Many Bank Accounts Should I Have?
This is a personal choice.
At the bare minimum:
- Checking Account
- Savings / Emergency Fund Account
If you choose to the bare minimum number of accounts, then you are barely managing your money and more than likely living paycheck to paycheck. In addition, you probably haven’t saved much money in the past.
On the extreme side, one for every single personal budget category. That is a little obsessive. But, some people find the more bank accounts they have, the less likely they are to spend money.
So, how many bank accounts should you have? What would the savvy person with money do?
The perfect number to meet your money goals.
Have you uncovered what your money goals are and planned how you want to spend your money in advance? If not, then decide on your money goals ASAP. That is key to knowing the perfect number of bank account for you.
The most important separate savings account is an emergency fund. That comes first! Do not start any of the remaining funds until your emergency fund is fully funded.
Below are the must needed savings accounts that I have and highly recommend you have as well.
Even better, read the Money Bliss Steps to Financial Freedom to make sure you are on track with your personal finances.
Multiple Bank Accounts for Budgeting
Learning how to budget with multiple savings accounts is an important tool to make the budgeting process easier.
Especially when you learning how to budget by having multiple savings accounts, it will visually show you where you allocated your money and take away the urge to spend what is left in your checking account. Much like the cash envelope system.
At Money Bliss, we recommended the following must needed savings account. That way you can manage your money and reach financial freedom.
1. Emergency Fund
This is key for success with money and avoiding debt like the plague.
An emergency fund is the backbone to your financial security. The solid foundation to build upon.
Without an emergency fund, you will be left scrambling when a crisis will hit. It is not if an emergency will hit; it is a matter of when. And typically, a crisis will hit at the most inopportune times.
So, be prepared with an emergency fund that is kept separate from your day-to-day bank activities.
Learn how much is needed for an emergency fund and everything else you need to know.
In all honestly, hopefully, you will never need to touch the money in your emergency fund again.
Related Reading: Quickstart your Emergency Fund Challenge in Less than 60 Days
2. HSA or Medical Fund
While setting money aside for medical expenses is not my favorite thing to do, I know it is imperative for my health and the health of my family. Not to mention, the health of my personal finance situation.
By having a health savings account or medical fund in place, I know that there is money to pay the doctor, buy prescriptions, and meet our medical deductible, if necessary.
The ultimate situation would be to save money in a health savings account. However, not all people have access to one with their current medical insurance. So, you can create your own medical fund. It won’t have any of the awesome benefits of the HSA, but you will have money set aside to met your health and medical needs.
3. Rainy Day Fund
When it rains, it pours.
Seriously, this can be true for those who just feel like they can’t catch a break.
A rainy day fund is not an emergency fund. However, it is a much larger fund set aside to cover 3-6 months of expenses.
The confusion between the two accounts is very common and ultimately, leads to people spending it since it is just sitting their and not having the money when they truly need it.
Keep your rainy day fund separate from your emergency fund.
Personally, I prefer to keep part of my rainy day fund at a high interest online savings account, so I can have the money within 3 business days if need. Then, the remainder invested in no cost index funds. It will take longer to access, but I have enough short term savings to cover the immediate needs and my money can still make money.
Learn more about rainy day funds.
4. Vacation Fund
Oh, my favorite reason to save money!! TRAVEL!!
This is probably the most highly coveted bank accounts in our house – the vacation fund.
We live frugally, find ways to save money all the time, and don’t spend money on norms because we want to save the money to travel. It is so much easier to say no to yourself when their is a bigger money goal in mind.
For you, this vacation fund would be money set aside to travel and explore. You put the priority first in when you make a budget and transfer money for your vacation fund.
5. Car Replacement Fund
Hint: This is how you will never have a car loan again.
I hate it when I hear that a car loan is normal. It makes me cringe each and every time. A car loan is not normal and not needed. Who needs to be swaddled in debt and have the average car payment of $530 a month.
The key is to own a car free and clear (paid in cash) and then, set aside money for a replacement.
By setting aside $100-200 each month for a new-to-you car, you are able to save up fairly quickly over a couple of years. That is how much in interest payments for an auto loan anyway.
Your car replacement fund will probably ebb and flow based on the age and dependability of your car. If you have a newer car, then you are fine setting aside a lower amount of money. If your car is coming up to possibly needing replaced or costly repairs, then a larger amount probably needs to be saved.
Side note: this fund can also be used for car repairs, too!
6. Home Repairs or Improvement Fund
For homeowners, this type of savings account is for you.
Like a financial or personal crisis, it is only a matter of time before something breaks or needs to be replaced in your home. And like always, home repairs come at the most inopportune time.
Other times, you know you are looking a bigger remodel project if you don’t have a home built within the last 10 years. Those projects can take a big chunk of cash and you are better to look away from using a HELOC or home improvement store credit card.
Money needs to be set aside for home repairs or improvements. Just open an home repairs/improvement fund to make sure you are covered when the need arises.
If you’re not a homeowner yet, this could be saving for your down payment for a house or condo.
Other Possible Bank Account Funds:
Many of these types of possible savings accounts are temporary. Others are seasonal. While some are personal preference.
- Engagement Ring
- Opening a Business
- Kid’s Activities (books, sports, car, wedding)
- Entertainment Fund
- His Money / Her Money
- FUN Money / Slush Fund
Truly the list can go on and on. It depends on what you need and want to save for. That is your answer.
Also many times, you can use cash envelopes for the above (smaller) funds rather than open another bank account.
How Many Bank Accounts Will You Have?
Now, with all of the information given to you, how many bank accounts will you have?
What is the perfect number to improve your money management and saving goals?
Your number will be different than mine.
Everyone is on their journey of managing money better. So, don’t compare yourself to others. Just make sure by having multiple bank account for budgeting that it makes things easier for you.
However, how many bank accounts should I have… The perfect simple answer to start would be:
- Checking Account
- Emergency Fund
- Big Sinking Account
Comment below on the number of bank accounts you have and their purpose.