How Many is Too Many?

The magic answer is...going to be revealed at the end.  When starting a relationship with your new bank/banker, it is important to have an idea of what you need and want.  Most people will begin with a checking account, and others with a savings account.  The checking is for spending money, and savings keeps money unavailable for spending.

However, not everyone uses just a checking account and just a savings account.  Some people have more than one checking account, and some have more than one savings account.  In this article, we'll discuss some of the reasons and pitfalls for these other accounts.

The Second Checking Account

In an effort to avoid overdraft fees, some people will opt to have a second checking account.  With the first account, you uses your debit card.  You open the second account for writing checks and paying routine bills.  Here is the logic:

The customer pulls up their balance on the Automated Teller Machine (ATM).  The ATM says there is $50 in the account.  Thinking about the transactions that should have posted, the customer believes they can withdraw $20 from the ATM and go on their way.  Later that night, however, the customer forgot the check for $40.  Now, the customer has received an overdraft fee for spending $60, when there was only $50 in the account.

When there is a second checking account, the customer knows the checks are already covered.  In this example, the customer has to pay a bill for $40 (let's say its the same $40 check from the previous example).  The customer goes to their branch/online/phone/mobile service and transfers $40 to the bill pay checking.  Then they write out the check for $40 and send the check on its way.

Two things happen now.  First, when the customer goes to the ATM, they will only see $10 in the account (the $40 is already moved to the other account).  Second, no matter how long the check takes to process, the $40 is there waiting for the check (as long as the customer does not raid this account for funds, there is still some discipline required for this).  So, whether the check posts on the same day, or the check waits 2 months until it is cashed, as long as the customer does not take money out of the account, the money will be available for the checks written.

We all know of some company or person we write checks to that holds on to them for 'too long'.  This second checking account model helps avoid the potential problems with this event.

The Additional Savings Account(s)

Additional savings accounts are easier to understand.  If you have multiple savings goals, and most people do whether they articulate them or not, then having multiple savings accounts allow you to track the individual goals.  If you want to buy a house, you want to start saving money with that goal in mind.  If you want to have an emergency fund to prepare for unforeseen circumstances, then you want a separate savings account for this.

After all, you don't want to completely give up on your home buying goals because an emergency caused you to pull money that wasn't intended for emergencies.  These goals are your own, but some common ones are retirement, buying a home, taxes, emergencies, buy a vehicle, education, vacation, and on and on from there.

If you have an account set aside for the goals you decide are important to you in the future, you can track the progress of each goal.  When you reach one of the goals, a vacation for example, you can use the money set aside by moving it to your spending or bill pay account and put the money towards the goal (then start saving for the next vacation, for example).

So, extra savings accounts are usually more common than more checking accounts (though both are potentially useful).

However, Check Your Checking Options...

This collection of financial storage solutions is not without its potential problems.  Each bank has its own criteria for either paying, or avoiding, a fee.  For example, some banks will require you keep a minimum balance to avoid a monthly maintenance fee (MMF).  This MMF could be $100 or it could be $2000, it depends on the institution and the caliber of the account.  If you are not meeting these balance requirements every month, you could be charged fees that end up costing you more than the potential overdraft fees you are trying to avoid.

Some banks will require you to get direct deposit to avoid a MMF.  This is fine, but only if your employer supports the ability to split your direct deposit up, and not force you to put it into one place.  If your bank requires a direct deposit, and you cannot do that to every account, this could cause MMFs.

Still other banks will require multiple purchases to avoid a MMF.  Some banks even require these purchases be done with a debit card.  This puts the 'checks only' option out of play, because if you have to use the debit card anyway, you may as well keep your finances in a single account anyway.

And, Don't Forget the Savings...

Savings accounts often have minimum balance requirements, and you should know what those balance requirements are.  If you go below them, sometimes even a single penny for a single day, you could be charged for having the savings account.  First, this puts a floor on the money you have available to you.  The money below that floor you lose access to until you close out your account.  So, if you have saved up your $1500 for your vacation, but the account has a $200 minimum balance, then you either have to close the account or you need to save an extra $200 ($1700 now) just to use the $1500 you originally saved.

This is an annoyance, but if you have an emergency, you could add insult to injury when your bank charges you a fee for going below the $200 minimum balance just because you had an emergency to deal with.

So, How Many Are Too Many?

The magical answer to how many accounts are too many depends.  

Ideally, you have full access to all of your transactions to date AND all transactions you expect to come out of your account.  Fortunately, this is becoming easier and easier to support, between mobile banking and technological storage of your transactions.  Using a smart phone, you can often see your transactions so far.  With a record keeping software, such as Quicken, you can decide which transactions have yet to post.  Using these two numbers, however, you can figure how much money is truly available.

If you don't want to keep track this closely, then open separate accounts for your own peace of mind.  Keep in mind, however, the costs of those accounts and be certain to do what is necessary to avoid them.  Otherwise, you could find yourself paying far more than any single overdraft fee could charge you.