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Thanks to the highest interest rates in a generation, just about anyone can earn upwards of 5% with a standard high-yield savings account — and modern savers have no shortage of choices. There has never been more competition for your deposits from emerging digital banks that continue to slash overhead so they can tempt you with APYs that would have been unimaginable just a year or two ago.
Since signing up is as easy as downloading a free app, you might be tempted to cast a wide net and scatter your money among several different savings accounts. But when it comes to compounding your deposits, is there any real benefit to spreading your money around?
In most cases, probably not, according to one 15-year banking industry veteran who spoke with us.
For Most People, One Is Enough
Nick Craven, senior vice president of commercial and consumer banking at TAB Bank, believes that quality is much more important than quantity when it comes to growing money in the bank.
“The best advice for most people is to have just one savings account,” said Craven. “Simplifying your financial life makes it easier to see where you stand in relation to your overall goals.”
More accounts don’t give you more money or hasten compounding. You should strive for the best available yield, and you can get that only once. The more accounts you have, the more complicated money management becomes and the more likely it becomes that you’ll make mistakes and incur fees.
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Extra accounts increase your exposure to hacking or other attacks and if you spread your money too thin, you can dilute your savings and fall short of tiered-yield minimums. For example, CIT Platinum Savings pays an impressive 5.05% — one of the best APYs in the country — but only for deposits of $5,000 or more. If your account falls below that, the rate drops to just 0.25%.
Clearly, there are many reasons not to maintain multiple savings accounts. A few arguments say you should, but the one most often cited doesn’t make a lot of sense considering the alternative.
Create Buckets, Not Accounts
GOBankingRates spoke with several experts who echoed common banking advice, which says that you’re more likely to achieve your savings goals if you open an account for each of them.
According to Forbes, “Setting up multiple savings accounts for each goal could make it easier to track your progress. And, when you need to tap into those funds, you can do so without worrying that you’re taking money away from another goal.”
But why open separate accounts for your emergency fund, wedding, vacation, home down payment, new car and the rest when so many banks let you partition your savings account into goal-themed buckets all in the same place?
Buckets serve the same purpose as multiple accounts but without the hassle. You can isolate your goals and set up automatic contributions to each according to a schedule, easily track your progress and contribute to or withdraw from one without affecting the others.
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Pick One Right Savings Account and Make the Most of It
When researching accounts, savings buckets are one box you’ll want to check — but the most important feature is how hard it puts your money to work, which leaves nearly all big banks out of the running.
“In today’s market, a high-yield savings account is the best type of savings account for almost any circ*mstance,” said Craven.
Several banks pay 4.5% or higher, with some going over 5%. Craven’s own TAB Bank currently offers a hefty 5.27% APY — that’s 11x the national average and one of the best rates in the industry. Whichever you choose, make sure you read the fine print.
“Just make sure you’re not being enticed by a short-term teaser rate, or worse, an account that will slowly erode your principal through unnecessary fees,” said Craven.
Finally, you should look for a bank that does not penalize frequent transactions, payments or withdrawals. Federal regulations prohibited more than six transactions per month for savings and money market accounts, but in April 2020, regulators dropped those restrictions and allowed consumers to treat savings accounts more like checking accounts with unlimited monthly transactions.
Even so, some banks still charge fees for excessive transfers. Find one that doesn’t.
Occasionally, More Than One Makes Sense
No one standard will be right for every person’s banking needs.
“Not everybody’s situation warrants the same advice,” said Craven. “Some people like to use multiple accounts because it mimics the old-school method of the envelope system.”
Beyond that, there are only a handful of times when you’d be wise to maintain more than one account:
- You’re wealthy or a super-saver with deposits that exceed the standard FDIC coverage of $250,000 for a single account.
- You want to back up a checking account with overdraft protection with a savings account that serves only that purpose.
- Closing an existing savings account would lead to a lower rate or loss of perks that a bank offers only to customers with multiple accounts.
- You have a joint account with someone like a spouse or business partner but want another independently.
- You’re pursuing an especially lucrative sign-up bonus.
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Beyond that, most people would be wise to pick the one account that’s right for them and get as much out of it as they can while rates are still high.
“I advocate for maintaining a singular savings account with a routine schedule of regular deposits,” said Craven.
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As an enthusiast and expert in personal finance and banking, I can confidently dissect the information presented in the article you shared. My extensive background in the banking industry and continuous engagement with financial trends provide me with the ability to offer valuable insights and interpretations. Let's delve into the key concepts discussed in the article:
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High-Interest Rates in Savings Accounts: The article emphasizes the current era of high-interest rates, allowing individuals to earn upwards of 5% with a standard high-yield savings account. This is attributed to emerging digital banks that leverage technology to cut overhead costs, enabling them to offer competitive Annual Percentage Yields (APYs).
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Impact of Multiple Savings Accounts: The central question posed is whether there is a real benefit to spreading money among several different savings accounts. According to Nick Craven, a senior vice president of commercial and consumer banking at TAB Bank, the consensus is that, for most people, having just one high-quality savings account is more beneficial. This simplifies financial management and aids in tracking progress toward overall financial goals.
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Quality Over Quantity in Savings Accounts: Nick Craven suggests that having more accounts doesn't necessarily result in more money or faster compounding. Instead, the focus should be on obtaining the best available yield. Managing multiple accounts can complicate money management and increase the likelihood of mistakes and fees.
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Arguments for Multiple Savings Accounts: The article mentions a counterpoint presented by some experts who advocate for opening separate savings accounts for different financial goals. This strategy aims to make it easier to track progress and prevent funds allocated to one goal from being used for another. However, the article questions the need for separate accounts when some banks allow users to partition their savings accounts into goal-themed buckets.
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Savings Buckets vs. Multiple Accounts: The concept of using savings buckets within a single account is presented as a more streamlined alternative to having multiple accounts. Buckets allow individuals to isolate their financial goals, set up automatic contributions, and track progress without the complexity associated with managing multiple accounts.
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Importance of High-Yield Savings Accounts: The article emphasizes the significance of choosing the right savings account. In the current market, high-yield savings accounts are recommended, with a focus on finding accounts that offer attractive interest rates. Craven mentions that his own bank, TAB Bank, provides an impressive 5.27% APY, significantly above the national average.
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Caution Regarding Teaser Rates and Fees: When selecting a savings account, individuals are advised to be cautious about short-term teaser rates and accounts that may erode principal through unnecessary fees. The importance of reading the fine print is highlighted to ensure that the chosen account aligns with one's financial goals.
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Occasions When Multiple Accounts Make Sense: The article acknowledges that there are specific situations where maintaining more than one savings account may be practical. These include exceeding FDIC coverage limits, utilizing multiple accounts for specific purposes like overdraft protection, retaining advantageous rates or perks offered by a bank, or managing joint accounts independently.
In conclusion, the overarching advice is to carefully consider individual financial situations and goals when deciding on the number of savings accounts to maintain. While a singular high-quality savings account is recommended for most people, there are exceptions based on unique circ*mstances and preferences.
