When to Open Multiple Bank Accounts

Your financial personality and saving habit will determine your financial position. Opening multiple accounts for various savings target is an effective way to avoid debt and create wealth.

There are different types of accounts to consider. We have savings account, fixed deposit, join account and current account. Financial experts recommend opening multiple accounts for target savings.

Multiple accounts are ideal for highly organized individuals. Before opening any account compare interest rates and fees on all the accounts.

Write a budget

The first step is to list your income and fixed expenses. The income is the amount for each paycheck while fixed expenses are mortgage, utility, and rent.

There is also the fluctuation expenses like grocery bills, medication. Write a practical budget to track your earnings and expenses for two months. The entire exercise is to create room for savings.

Fixed expenses

•         House

•         Rent

Fluctuating expenses

•         Medication

•         Grocery bills

Automate the transfer

A very effective way to increase savings is to automate transfers. Instruct the bank to automate transfer of funds into your savings account. The amount could be a fraction of your earning depending on your comfort level.

Open a fixed account or money market account

If you constantly spend funds from your target savings account you need an account that would restrict access. A money market account limits the number of times you can withdraw from the account.

 Another account is the termed fixed deposit. Early withdrawal of funds from a fixed deposit would attract penalties. A fixed deposit could be for six months, one year or five years.

Why multiple accounts work

Multiple accounts offer individual savings goals like paying off the mortgage, buying a car. Online banks have made opening multiple accounts easy. You are at liberty to use one financial institution or multiple institutions.

Different accounts offer multiple savings options, goal, better tracking. You can open an emergency account, long or short termed fixed deposits. Another advantage includes better interest rates, multiple perks or account opening bonuses.

Advantages

•         Individual savings goals

•         Easy to open

•         Use one or more banks

•         Multiple savings options

•         Better tracking

•         Better interest rates

•         Multiple perks

Disadvantages of multiple accounts

The major disadvantage is the lean spread. The individual will not benefit on high interests on cumulative funds. Others difficulties is tracking each account and confusion.

There is also the difficulty in reaching minimum balance, low interest rates on loans. The person can lose money on transfers, complicated automatic transfers, and higher fees.

•         Lean spread

•         High interests on cumulative funds

•         Difficulty in tracking funds

•         Confusion

•         Difficulty in reaching minimum balance

•         Low interest rates on loans

•         Lose money on transfers

•         Complicated automatic transfers

•         Higher fees
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