Most people have one savings account to their name, but there are no rules to how many accounts you can open. Savings can be purpose-built for every financial goal — whether you want to buy a new pair of shoes, go on vacation, or prepare your finances for an emergency.
What Savings Do You Need the Most?
When you first start saving, the emergency fund is the single most important account you can have. It protects you against the unknown, so you can handle unexpected expenses without worry. It’s only once you have a thousand dollars in this account that you can think about other savings accounts. And even then, you should keep saving for emergencies.
Typically, one emergency fund contains all the extra cash you put aside for a rainy day. You dip into this account regardless of your emergency — whether for stitches at the ER after you cut yourself while cooking or a brand-new transmission for your used car.
Since you might make several withdrawals from this account in any given year, it needs to be big enough to handle any emergency. Most people try to stock their funds with three to six months of living expenses, but some conservative savers aim for as many as 12.
What if Your Emergency Fund Runs Out?
If you don’t have enough emergency savings to repair a leaky water heater or replace your brakes, you might consider borrowing from your other savings. It’s hard to see the balance of your vacation fund go down without going on holiday, but some household and auto repairs are more important than a beach getaway.
If you don’t have any other savings to siphon, you can consider taking out a loan online. Some online loans are designed for when emergency savings fall short of what you need.
It’s easy to apply online for a personal loan, provided you have basic financial information at hand. Most online applications only take a few moments to complete, and you’ll know if you qualify soon after. If approved, you can receive an online loan as a direct deposit into the account of your choice.
Pros of Having More Than One Savings Account
Track Your Progress
One of the biggest advantages of having more than one account is that you can easily track your progress across all your priorities.
Set Boundaries
Using your money for unintended purposes is easy when you keep all your savings in one account. Separating your goals can help you avoid dipping into an emergency fund for non-emergencies.
Maximize Sign-On Bonuses
Most banks offer an initial sign-on bonus when you open an account. The more accounts you open, the more you get. You can also move money around to get the best yield as interest rates change.
Cons of Having More Than One Savings Account
Lose Compounding Interest
Each account will accrue compound interest. But compound interest is at its most effective when it’s calculated on one large lump sum rather than several smaller sums.
Hard to Juggle
Opening and managing several accounts can take time and effort. It’s also an administrative matter when you first set up automatic contributions.
Watch for Account Rules
Some savings accounts have withdrawal limits, balance minimums, and other rules that can make it challenging to access your savings.
The Lesson:
One emergency fund is all you need, but purpose-built savings spread across multiple accounts can make it easier to organize your finances. The exact number of accounts you open doesn’t matter as long as you save!
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