The Pros and Cons of Having Several Bank Accounts

Deirdre Jannerelli
December 7, 2018

Do the benefits outweigh the drawbacks of having multiple bank accounts?

The answer? That depends on you and your individual needs. But to get a better understanding of the pros and cons, let’s take a look at both sides of the equation.

Multiple banks accounts can help you with:

  • Keeping long-term and short-term financial goals separate. It may make sense to have separate accounts for each of your major financial goals, rather than muddy the waters by lumping all of your funds into one account. Long-term savings goals might include saving for retirement or buying a home, while short-term objectives could include putting aside money for a dream vacation or home renovations.
  • Separating business finances from personal finances. A business owner is better equipped to track their company’s finances by having an account separate from their personal ones. Plus it makes sense from an accounting perspective.
  • Taking advantage of tax incentives. If you itemize your deductions, if could be helpful to have separate accounts to keep track of certain expenses like healthcare, work-related costs, or education.
  • Saving for your dependents. It’s never too early to set up accounts for your children. A savings account in their name will encourage them to do just that – save. But keep in mind that most bank accounts established for a minor will have to be held jointly with a parent or guardian.
  • Creating an emergency fund. Financial experts recommend setting aside three to six months of regular income for emergency situations. Placing that money in a separate savings account would be a wise move, especially if the account yields high interest.

So what are some of the drawbacks of having too many accounts?

  • More accounts to monitor. All of your bank accounts need to be checked on a regular basis to ensure you don’t overdraft your account, and so you can spot any errors or suspicious activity in a timely fashion. If you find it difficult to manage the accounts you already have, it’s probably not a good idea to add more accounts to the mix.
  • Could potentially result in more fees to pay. Depending on the types of accounts you’re looking to open, you could end up paying more fees each month. Before you open new accounts, be sure you fully understand what fees, if any, are associated with them, such as monthly maintenance fees, or minimum balance fees.
  • Potential impact to your credit score. For the most part, having multiple bank accounts won’t cause damage to your credit history, however there are some specific instances where it could be affected by new accounts:
    • Some financial institutions require a pull of your credit report before they will open a new account for you. This type of “hard inquiry” doesn’t generally have much noticeable impact on your credit score, but having your credit report pulled by multiple financial institutions within a short period of time could temporarily drop your score.
    • If an account reaches a negative balance and stays there for a long period of time, the bank could consider it a delinquency and refer it to a collections agency to retrieve the amount owed. The agency, in turn, may report this delinquency to the three credit bureaus, resulting in a negative mark on your credit score.

Whether you decide to utilize multiple bank accounts to manage your finances, or keep it simple with just one or two accounts, knowing the pros and cons of both options will help you to make the decision that’s right for you.

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