Do multiple bank accounts help you manage money better?

Multiple bank accounts help you stay organised and focused on your savings goals

Dubai: How many bank accounts should you ideally have in total? Two — a current account and a savings account? Or, does it help to pool all your savings into one account instead of dividing funds across multiple others?

While it is often talked about using multiple bank accounts to budget your finances better and in doing so, rein-in any impulsive tendencies to overspend, does it help in reality? And if there are costs associated with such a move, are they worth the effort of managing multiple accounts?

“Yes, maintaining several accounts in order to manage money better does require a bit of logistics, but thanks to a rise of online banks, it doesn’t have to cost anything,” explained Parthiv Patnaik, a Dubai-based banker with nearly four decades in the industry.

“Digital-only banks tend to have low or no fees as don't have to spend money on branch maintenance. Many such accounts advertise having no monthly service fees, while others offer no overdraft fees, that is charges to withdraw more money from your account than the amount you have in it.”

What if you pooled all your savings into one account instead?
While splitting your balance between savings accounts at different banks ensures that excess deposits are kept safe, Patnaik also flagged that by pooling those balances together at a single bank, “you'll achieve a higher balance that may qualify you for better savings growth, and even higher lines of credit that carry lower interest rates than most credit cards”.

Risks to factor when having multiple bank accounts

Though having multiple accounts can seem to make your money management task simple, you need keep in mind a couple of factors when looking to maintain them in the long run, explained Jose Paul, an Abu Dhabi-based banking analyst, while listing out such risks:

• Not every account can be a zero balance account

Many banks require that you keep a minimum amount of money in your savings account. This is generally known as a minimum balance requirement.

In some cases, maintaining a minimum balance may let you reduce or eliminate fees or earn a higher annual percentage yield (APY) or the rate of return in a year.

But not every account can be a zero balance account, so check the minimum balance requirement and monthly service fees on the account and ensure you maintain that to avoid unnecessary charges.

• Check to see if fund transfer fees are being charged

Transferring money from your account is usually free and safer than withdrawing and paying in cash. But at times you'll be charged a fee on any transfers you make, which is a percentage of the transfer value.

Check to see if fund transfer fees are being charged on the accounts. So when transferring funds to another account, add these fees and make the transfer.

Ensure you don’t transfer funds from one account to another back and forth as there can be fund transfer fees charged.

How do I combat the above risks?
While getting a new bank account make sure there are certain benefits provided like limited or unlimited fund transfers, low or no minimum balance requirement.

Some of the bank accounts also come with certain discounts and rewards. Keep a look at the rewards and make use of them.

How do you keep track of multiple accounts?

• Track everything in a spreadsheet

“Manually track everything — we’re talking balances, interest rates, prospective earnings — in a spreadsheet,” said Patnaik. “You have to be business-like about it. Track all the login information, feed the accounts with deposits, log in and check on the accounts from time to time.

“If you’re using this strategy extensively, manage and monitor it regularly, so a spreadsheet helps give you that perspective. Not only does the spreadsheet method help you track everything, but it also helps you avoid putting financial information online — which is something many people prefer to avoid.”

• Limit transfers between accounts

While the whole point of having multiple bank accounts is to transfer money to each of them, you don’t want to transfer money more times than you have to. “Transferring money too often can be confusing, especially if you’re doing it to help you stick with a monthly budget,” added Paul.

“Your financial institution might also charge you fees to transfer money to other institutions and most importantly, the more you’re moving your money between accounts, the less chance it has to earn interest.”

• Keep all your bank accounts active

Often times, people have multiple bank accounts because it’s part of their focused investment strategy. But this strategy doesn’t work by simply owning so many accounts – “you actually have to be an active user of all of them so they’re not considered abandoned, which is no small task,” explained Patnaik.

“This can be done with automated transfers, but if you have more than a handful bank accounts, it will still be a lot for the average person to handle. Each bank account has its significance, so while you don’t limit them to a number, find the best deal if you’re looking to maximise earnings in a bank account.”

• Minimise transfer fees between accounts

One tip most experts offer in this regard is to focus on minimising transfer fees between your accounts. “With multiple accounts, transfer fees can add up, defeating the whole purpose of having multiple accounts. You can avoid these fees by looking at banks that offer no-fee accounts,” added Paul.

“If you are considering opening multiple accounts, consider the time it takes to manage the accounts, monthly service and minimum balance fees. You may also overlook and miss fraudulent activity, overcharges or double charges. Remember, juggling accounts it takes business-like management.”

Will opening several accounts affect my credit score?
Opening and closing any type of savings account will not affect your credit score as they are developed solely from the information that appears on a consumer credit report, like your history of credit cards and loans.

Instead, banks may run a check which shows a potential customer’s past deposits activity. This includes things such as unpaid negative balances, frequent overdraft fees, bounced checks and suspected fraud.

Key takeaways: What factors do I keep in mind with multiple bank accounts?

• First and foremost, make sure not to keep the same password for all your banking accounts. Because if one bank account gets hacked, the likelihood of all your other accounts getting hacked are higher.

• The more accounts you have, the more work it can be for you to handle it. Though the automatic debit option can make your work easy, it is crucial to monitor the accounts to ensure your budgets are on track.

• It is recommended by financial planners that those who are holding one or two accounts need not open separate accounts for each expense as it can be a pitfall if you are unable to manage the accounts.

• The main things to watch out for when having multiple accounts are fees and/or fraudulent charges. Both of which can outweigh your earnings, ultimately defeating the purpose of having various accounts.

Bottom line?

Multiple bank accounts can help you stay organised and focused on your savings goals, Patnaik and Paul reiterate. By dedicating a specific account for each objective, like an emergency fund, vacation, or home down payment, you can monitor your progress more easily.

This is not your average investment strategy and it takes a lot more work than most of us are willing to put in. However, they add that it’s a strategy that’s proven successful for many and a major part of that is thanks to keen money management skills.

And while spreadsheets may not be for everyone, the good news is that there’s plenty of digital offerings for money management out there whether it’s from your bank or an app. All you have to do is decide which one is your preferred strategy.