When Having Multiple Bank Accounts is Bad?
Studies have shown that the average American maintains relationships with more than four financial institutions. While this is not necessarily a bad thing, chances are you're paying fees on accounts that overlap.
While having the pleasure of running my own business, I am also forced to carry an abnormally large amount of credit and debit cards: Half for my personal life, half for work purposes. While I understand the reason I am in this position, a number of consumers have the same number — if not more — bank accounts for personal use alone.
This begs the question, “how many bank accounts do you need?” Personally, I believe the answer is three: a savings account, checking account and a CD. Yes, a loan or a mortgage could be seen as an account, but for the purpose of this article, we are going to focus on savings and checking.
Reasons to Avoid Multiple Accounts
Right out of the gate, protecting yourself from identity theft is the number one reason to limit your accounts.
When I made the decision to open a new money market account, I also closed my existing savings account. The old account was earning no interest, I had no plans of using it, and online banking made it simple to close.
Keeping it open would only mean having to keep an eye on the account to ensure it did not get hijacked, leaving me paying fees or fraudulent charges.
Another key reason to avoid maintaining multiple accounts is one that can cost you: specific account fees.
With the government playing a bigger role in how banks earn money, new fees are always popping up.
While not meeting certain requirements might only cost you a dollar or two at a time, applying these fees to multiple accounts can quickly add up.
For example, the average monthly fee on a savings account is $3, according to MyBankTracker national fee averages.
Avoiding this fee would require an average balance of $7,586. If you fail to meet this requirement you would pay $36 per year on each account.
The last point to be aware of is really pertinent to those who might chase the best rates or try to grab the most recent bank promotion.
While these deals can offer quick cash or higher returns, you could trigger a credit check each time apply for an account.
Banks are allowed to check your credit, which they do to measure the risk of giving you the account and to cross-promote products that might fit your situation, i.e. credit cards.
While soft credit checks don’t hurt your credit, hard credit checks do. Some of the major banks perform these "hard pulls." Make sure to ask about the potential for a credit check if you are opening multiple accounts.
When Having Multiple Bank Accounts is Good
While the aforementioned points are reason enough for me to carry no more than two accounts, situations exist in which having an extra account could be worthwhile.
The most common example is opening joint accounts. The joint account could be maintained by you and your spouse or held between a parent and their child.
A joint account allows users to easily add funds and monitor activity, which could come in handy on a parent-child account.
Other reasons include unique opportunities such as senior accounts or retirement accounts that offer tax benefits. Higher-earning interest savings accounts like certificate of deposits, or CDs, might warrant opening an extra account.
Knowing Your Banking Habits
A few weeks ago I wrote a column on saving money by knowing your banking habits. This same mindset applies to carrying multiple accounts.
If your banking habits allow you to open, monitor and manage multiple accounts, don’t let this article convince you not to.
If you're the average consumer trying to get your finances in order, fulfill your banking needs and avoid fees and fraud by sticking to a savings account and a checking account.
What do you think? Do you carry multiple accounts with no issues? Share your experience in the comment section.