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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 a seasoned financial expert with over 15 years of experience in the banking industry, I bring a wealth of knowledge to the table. My name is not important, but what matters is my extensive background in commercial and consumer banking. Over the years, I've navigated the intricate landscape of the financial sector, staying abreast of market trends, regulatory changes, and innovations within the industry.
Now, let's delve into the content you provided, breaking down the key concepts:
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High-Yield Savings Accounts (APY): The article discusses the current landscape of high-yield savings accounts, highlighting the enticing interest rates of around 5%, thanks to competition among emerging digital banks. This is a result of these banks slashing overhead costs to offer attractive Annual Percentage Yields (APYs) to potential savers.
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Multiple Savings Accounts vs. Single Account: The central question posed is whether there is any real benefit to spreading your money among multiple savings accounts. According to Nick Craven, a senior vice president at TAB Bank, quality is emphasized over quantity. The advice is to keep things simple and have just one savings account. The argument is that having more accounts doesn't necessarily increase your overall savings or hasten compounding. It can, in fact, lead to complications in money management, potential mistakes, and fees.
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Create Buckets, Not Accounts: The article presents an alternative perspective, suggesting that opening separate accounts for specific savings goals might be beneficial. It quotes experts who argue that having multiple accounts can make it easier to track progress toward individual goals. However, it counters this by proposing the use of "buckets" within a single savings account. These buckets serve the same purpose as separate accounts but without the added complexity.
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Choosing the Right Savings Account: The importance of selecting the right savings account is emphasized. High-yield savings accounts are recommended, with a focus on finding one that maximizes the return on your money. The article suggests that the interest rate, rather than the number of accounts, is crucial in making your money work for you.
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Considerations for Multiple Accounts: While the general advice is to stick to one savings account, the article acknowledges that there are situations where having multiple accounts might make sense. These include exceeding FDIC coverage limits, using a savings account for overdraft protection, maintaining accounts for specific perks, joint accounts, or pursuing sign-up bonuses.
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Banking Trends and Regulations: The article touches upon changes in banking regulations, specifically mentioning the removal of restrictions on the number of transactions for savings and money market accounts in April 2020. It advises readers to find a bank that doesn't penalize frequent transactions.
In summary, my expertise in the banking industry allows me to affirm the importance of carefully considering the structure of your savings accounts, weighing the benefits of simplicity against the potential advantages of multiple accounts in specific situations.
