Saving money can be really challenging. You work hard to stash a little away every month, only to find yourself dipping into your emergency fund whenever you run low on cash. Progress is slow or non-existent. Thankfully, there are some easy steps you can take that will set you on the path to savings success.
Using multiple bank accounts is a great way to more clearly define your savings goals and finally make some progress.
This post will cover the 10 reasons why you should have multiple savings accounts.
Save for multiple goals
Simply setting the goal of saving more money might not get you very far. It’s easy to build up funds in a savings account, then tap into that nest egg anytime an unexpected expense arises.
The solution is to be very specific about your goals. What do you want to save money for and exactly how much do you need to save to accomplish this?
Furthermore, having a savings account for each goal allows you to clearly define what you are saving for and establish exactly how much money you will allocate to each goal every month.
Prioritize your savings goals
When you have multiple accounts and therefore clearly defined savings goals, you can better prioritize them. Rather than simply setting aside $400 every month, you can determine what your top goals are and allocate extra savings to them first.
Build the habit of regular saving
It takes time to develop new habits and learning to save more money is no different.
By defining your saving goals and making it easy to delegate your money for a specific purpose will help to build that habit of paying yourself first.
Track your financial goals
A big benefit to using multiple savings accounts is the ability to closely monitor and track your progress for each goal you set.
When all your savings are lumped together in one account, it’s harder to appreciate your accomplishments, or even know when you have reached a particular goal.
Tracking progress and getting closer to your specific smaller goals is extremely motivating. It’s much easier to keep going when you can celebrate your successes. When you have one account that covers all of your generalized savings goals, there is no sense of progress, milestones or timeline to success.
Apply a timeline for multiple savings goals
Yet another benefit to having multiple specific goals is that you can better prioritize how to add to each account and then control how quickly or slowly you make progress on a goal. This way you don’t feel tempted to dip into your larger, long-term goals, and better able to quickly make progress with your short-term goals.
Multiple savings accounts for budgeting
If you like the envelope budgeting concept of dividing your budget into spending categories then allocating only the money you can spend for each category, then using multiple savings and checking accounts can help.
In the envelope system, you create physical envelops and add a budgeted amount of cash to each one. There will be one envelope for groceries, utilities, eating out, gas, etc. When you run out of money in the envelope, you have no more to spend for the rest of the month.
This system helps you stay on track and think ahead, once you run out, you’re out.
If you hate carrying cash around, one way to utilize this same system is to just have a separate account for each category. The only downside to this style of budgeting is that you have to monitor and track multiple different account balances. You don’t want to overdraw accidentally.
Break the habit of dipping into your savings
If you find that you often have to dip into your savings account because you run out of money in your checking account and can’t pay your bills, it’s time to revisit your budget.
One benefit to having multiple savings accounts is you can have one account specifically for emergency funds. This is the only account that you can dip into. However, you still have other accounts that are building funds for your other savings goals.
Additionally, if dipping into available funds is tempting, you can use savings accounts that are harder to access. This is a time when it’s helpful to have a minimum balance requirement and a limit to how many withdrawals you can make a month.
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Earn higher interest on long term goals
While my bank allows me to have an unlimited number of free checking and savings accounts, the interest rate I can earn is downright pitiful.
By separating your accounts, you can control how much interest you can earn.
For example, if you are fortunate enough to have a large sum of cash savings, you can choose an online high-interest account with special rates for high minimum balances.
Or, if you have a long term goal that will take you years to accomplish, you can accumulate funds in an investing account.
There are a lot of options, but they depend upon how often you need access and how much you plan to save. By breaking up your goals into separate accounts, you can pick and choose appropriately.
Joint banking with separate goals
If you and your spouse or partner maintain combined finances but would like to work on separate savings goals, having your own individual savings accounts is handy. This way you can each save independently, and spend later without judgement.
How to successfully manage multiple savings accounts
The first option is sticking with your current bank or credit union and simply opening more accounts. However, if you are limited to the number of checking and savings accounts, or, there is an extra fee associated with this, the are plenty of other options.
Online banking offers many advantages. Many offer multiple or even unlimited accounts, all of which are fee free. Savings accounts have high interest rates which allow your savings to grow faster. Additionally, some offer iOS, Google, Microsoft or Android apps to make your banking experience convenient, easy, organized and maybe even fun.
If you are concerned about security of looking beyond the brick-and-mortar institution, there are some tips to be aware of.
- Choose an online bank that adheres to industry standard security measures
- Don’t use public wi-fi while conducting your online banking
- Change your password often
- Enable two-step authentication
You can read more about online banking security here.
Tips to use multiple savings accounts
If you aren’t already in the habit of managing your finances by tracking your spending, following a monthly budget or tracking your financial goals, it might be difficult to manage an additional few accounts. Consider building better financial habits before the more advanced maneuver of multiple savings account.
If you aren’t already tracking your finances, learn more at How To: Track Your Personal Finances.
And if you don’t have a budget, visit The Beginner’s Guide To Creating A Budget You Can Stick To.
You can download a full workbook on tracking your finances and worksheets to work through the process of tracking and establishing a budget at the FREE Resource Library.
However, if you’re ready to save for multiple goals, it’s best to automate your savings. Start with determining how much money you want to transfer to each account and when that transfer will happen. Then, establish an auto-transfer from your main checking account. Just make sure you always have sufficient funds to cover each transfer.
For tips on automating your savings, visit 15 Tips, Tricks And Tools To Automate Your Savings.
If you want to save more money, having multiple savings accounts is a great way to reach your financial goals. You can clearly define each of your goals, work on them individually with separate timelines and priorities, and closely track your progress. And, since each goal is clear and building in funds, it’s less tempting to sabotage your progress by dipping into your savings.
It’s easy and free to establish your accounts and with automated transfers, you can set your goals on autopilot. You can’t help but make progress and start saving more money.
- Check if your current bank provides the ability to add more accounts free of charge and service fees.
- Research the limitations for each savings account. Is there a minimum balance or limited number of monthly transactions?
- What is the interest rate for your bank’s savings accounts?
- If you aren’t satisfied with the options available through your current bank, look into other local banks or consider online banking.
- Compare interest rates and services provided.
- Open a new account, establish the number of accounts you need for your savings goals.
- Review your monthly and annual budget and establish how much money you can safely save each month.
- Determine how to divide that amount across your new savings accounts.
- Set up auto-transfers into each account.
- Check in and track your progress every month.
- You are now effectively saving more money and can sit back, watch your progress and your net worth grow!