Tuesday, February 7, 2012

Advantages of Multiple Savings Accounts

Have you ever asked your self, "Where did the money I saved for... go?", or "Hmm, I can't tell how much money I set aside for ...?" Chances are you need multiple savings accounts.

Multiple savings accounts help you keep your money organized. Each account has its own balance and transaction history. This allows you to quickly, and clearly, see which money is set aside for which expense without have to dig through one monolithic transaction history of one account. They also provide an explicit barrier between your accounts. You are much less likely to accidentally spend money for one expense that you have set aside for another simply because the check or debit card you use simply wont affect the account that hold the other expense.

Multiple accounts also provide a layer of protection from thieves. If someone manages to get a hold of your debit card or checkbook for your checking account or one of your savings accounts, your money in the other savings accounts would be protected. The thief would not have immediate access to that money in the other accounts.

If your bank imposes transaction limits on your savings accounts, they may impose the limit on individual accounts rather than one transaction limit for all savings accounts. If so, setting up multiple accounts effectively multiplies the allows number of transactions you can make before you hit your transaction limit. In addition, some banks do not impose limits for transfers made between savings accounts online, making it easier for you to reassign money as you like. Check with your bank to find out their savings account transaction limit policies.

If you have been avoiding setting up multiple savings accounts because of the hassle factor, then you would be pleased to hear that creating new savings accounts are easier now than ever before to setup. Many banks now provide options to quickly setup additional savings accounts online without having to go through the effort of filling out paper work or driving to a branch. You could even choose an online bank so you never have to leave the house.

So how should the money be broken up?

At a minimum, put your emergency fund in a separate savings account. This guarantees that every time you take money out of the account it is intentional. This account would be a good choice as a high yield savings account since the balance should be relatively high and steady.

After you have setup your emergency fund account, the next step would be to split your savings into a short term savings account and a long term savings account. The short term account could hold expenses that usually take less than a year to save up and are relatively small expenses. For example, this account could hold things such as quarterly insurance premiums, money for Christmas gifts, or any other lump sum expense you plan to make throughout the year. The long term savings could hold things that take are major expenses, such as vacations, car replacement, furniture replacement, or down payments for house. Many people decide to go even further and breakup their long term savings into more accounts for specific goals to keep track of the balance for each goal.

Regardless of how you much you separate out your savings, the point is that you keep track of your savings. If it's easier for you to keep track of just one savings account, then have just one savings account. If keeping track of your savings in one or a few account, then split it out into more. Just know where your money has gone, where it is, and where it will go.

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