Ace business magnate, Warren Buffet said, “Never depend on a single income. Make investment to create a second source. Well, the legendary investor wasn’t wrong. In February, early this year, Wells Fargo had a major power shutdown in one of their centers in Minnesota. This happened on a Friday when many workers were due to receive their paychecks. Naturally, the shutdown caused a lot of chaos and proved catastrophic for some workers who were in dire need of money.
Depending on a single source of income or not saving and investing enough can cost you. Also, to ensure that your savings or investments carry minimum risks, you must spread it across several accounts. Having all your money at one place may not be prudent. Here are six reasons why should have multiple financial accounts for your savings:
- It allows you to save for specific goals
All of us have different financial goals. It could be to buy a new car, renovate a house, save for a child’s education or marriage, travel to a specific destination, etc. Having different accounts for each of these goals can give you a better picture of how much time you need to accomplish them. For example:
- Keep a short- term savings account for goals that you need to meet within the next year, like renovating a house or buying a car.
- You can opt for specific accounts for your long- term goals. A 529 account is the best way to save for a child’s college education. Similarly, open a 401 (k) account for retirement. These accounts also provide better interest rates and tax benefits.
Here is a calculator to determine your short- term and long- term goals.
2. It is more secure
In order to make things simple, many people make the mistake of sticking to one bank account. Right from their credit card, to their checking account and emergency fund, everything is linked to just one bank. Imagine being in the middle of an emergency and not being able to access your money because of a power shutdown at your bank. While these episodes are rare and few, they do occur all over the world from time to time. It is advisable to spread your money in different banks. If your emergency account is with Bank A, take a credit card from Bank B. If something goes wrong with one, you can always fall back on the other.
3. It allows you to make multiple withdrawals in a year
Normally saving accounts and money market accounts allow six withdrawals in a year. If you have two separate money market accounts, you can increase this to twelve in a year. Depending on your requirements, you can split your money into multiple accounts and make several withdrawals. But keep in mind that while multiple accounts bring in more flexibility, especially in emergencies, they can also deplete your savings sooner than you think. If you have a tendency to spend more, you should stick to one account.
4. It brings more avenues of growth for your money
It is very rare to find a bank that offers the best interest on savings accounts, credit cards, and loans, etc. Different banks offer different schemes. Research well and find a bank that offers the best deals in each category. You can open a savings account in one bank and take a car loan or credit card from another. For example, if your work requires you to travel frequently, get a credit card that offers the best flying mile rewards.
5. It is important for FDIC and NCUA insurance
It is good to ensure that your bank is insured by Federal Deposit Insurance Coverage (FDIC) and the National Credit Union Administration (NCUA). Banks insured by FDIC and NCUA get coverage of $2,50,000 for each account. If you have saved more than $2,50,000 in your account, you should consider spreading your money across different insured banks so that all your money is covered.
Also remember that while FDIC insurance provides coverage in case your bank fails, this can be a very long process. You will have to file a receiver’s claim and then wait for it to get processed. Having a different account ensures that your savings are always accessible to you, even in such unforeseen circumstances.
6. It makes using credit cards safer
If you are unable to pay your credit card bill, the bank will ideally have to get a court order to seize your checking account. But if your credit card and checking account are in the same bank, they can seize your checking account without reaching out to the court. It is good to have a credit card in a different bank to avoid such situations.
To sum it up
As someone rightly said, “Variety is the spice of life”. Different banks offer different deals and schemes for your financial goals. Spreading your money across several accounts allows you the flexibility to access it whenever you want. Take note of your goals and finances and then decide how many accounts you need. Always remember to track each of these accounts and keep yourself updated with the changing policies. Broadly, try to have a mix of these accounts:
- A checking account
- An emergency fund
- A retirement account
- A short-term savings account
- A long-term savings account
Do you need help in spreading your savings optimally? Consult financial advisors and let them simplify the process for you.
Author Name: Team WiserAdvisor
About the author: WiserAdvisor helps you find the best financial advisors. By creating great content like this article, the team at WiserAdvisor hopes to spread awareness and helpful information about financial planning, retirement planning, and similar topics.