Married, with multiple bank accounts?
It sounds simple: one bank account for checking and one account for saving. But for many of us, life is a little more complicated.
In fact, according to Kristen Euretig, a Certified Financial Planner professional in Brooklyn, N.Y., most clients ask for help managing the number of accounts they use, especially if they're married. In some cases, it's not unusual for a married couple to have five or six bank accounts -- sometimes spread across multiple financial institutions.
Managing all those accounts can be time-consuming and confusing, which is why many people want to streamline. But unfortunately, there's no one right answer for everyone, Euretig says.
"Personal finance is just that -- personal," Euretig says. "What makes sense for one individual or couple may not make sense for another. There is nothing inherently good or bad about having or managing multiple accounts as long as it's working for that individual."
But helping you determine how many bank accounts you need and how many financial institutions you should work with often involves asking some fundamental questions about your goals, financial competence and needs.
Should you chase a higher yield?
If you've ever thought about opening an account with an online bank to get a better interest rate, you're in good company, Euretig says.
"It absolutely makes sense to open a second account with an online bank for a higher yield," Euretig says. "In addition to higher rates, online accounts often have useful savings features that make it easy to set up automatic savings plans that draw from a traditional brick-and-mortar bank account."
But with savings rates at, or near, historic lows, chasing a yield may not make as much sense once you do the math, says Chad McCloskey, a former bank executive and president of Vivo Livre, a financial planning and consulting firm in Newbury Park, Calif.
"When it comes to the online banks, you can chase rates, and you could even shift your balances between them in their rate wars. But, when it comes down to the actual difference earned after taxes, it's rarely going to be worth the time and effort," McCloskey says.
Should an account be goal-specific?
A savings account doesn't have to be for a specific purpose, but many savers choose to create a separate account if they're trying to build a lump sum for a specific purpose, such as a down payment on a home or a rainy-day fund in case of an emergency like an illness or job loss.
While spreading your savings across multiple accounts will slow the amount of money you make on interest, it's not necessarily a bad idea to have a goal-specific savings account, according to Mark Johnson, assistant professor of finance at Loyola University Maryland in Baltimore.
"It makes sense to have separate savings accounts under two conditions: if it helps you reach your goal and you're able to regularly monitor the accounts to make sure no unauthorized transactions have occurred," Johnson says. "Many savers are just happy to see their savings balances grow, regardless of whether the funds are for a specific purpose or not."
Do married couples need more accounts?
Just because you've joined your lives together in matrimony and jointly file your taxes, it doesn't mean you have to use joint bank accounts. Or at least, you don't have to use joint bank accounts at the expense of your own individual accounts.
"Many married couples choose to maintain a shared joint account and separate individual accounts," CFP professional Euretig says. "This allows couples the flexibility to make independent financial decisions, since not every financial decision is going to involve both parties."
For big financial decisions like buying a home or a new car, it's critical to be on the same page. But for little expenses, like eating out at work or buying new clothes, it's often a good idea to give your partner a little space, Euretig says.
"Shared decision-making on such minor day-to-day expenses can easily lead to disagreement," Euretig says. "Money is a tough subject for married couples, and many cite finances as the No. 1 cause of marital arguments. Having some autonomy with accounts gives couples more breathing room and independence to make their own financial decisions when they don't affect the other member of the couple."
Can your brain manage multiple accounts?
If you think keeping track of multiple accounts is a headache, you're right, says Himanshu Mishra, University of Utah associate professor of marketing.
In a recent study, Mishra found that individuals who manage multiple accounts spend more compared to those who have only one account. On average, Mishra found that the difference between having one account and multiple accounts could mean spending an extra 10% of the total.
"When people have a single account, they have a very clear, precise idea about how much money they have and they are unable to distort the available account information to justify spending, hence they spend less and save more," Mishra says.
But while maintaining one account means you're likely to be less "fuzzy" on the total, it may not be all that practical for some people. However, these days, there are a lot of online tools like Mint that help you manage your money across multiple accounts and banks. But, whether those tools alleviate the fuzziness isn't entirely clear.
"Consolidating all earnings across accounts so that people have a clear idea about how much they have in total could help," Mishra says. "However, this is conjecture. We haven't empirically tested this."
Will I pay more in fees with multiple accounts?
If there's one gripe we all have about our banks, it's the fees. In fact, the Federal Trade Commission cited bank fees as a top consumer complaint of the banking sector. But fees could also be the No. 1 reason why you might want to streamline the number of accounts you keep and number of financial institutions you do business with.
"Fees are wasted budget items and doing anything you can to limit and eliminate them altogether is very important," says McCloskey. "Any yield you might get by playing around with extra-high-yield accounts can be wiped out in a hurry by a single overdraft fee from most banks."
But don't assume that multiple accounts necessarily mean added fees.
"As long as they aren't incurring fees, there's no reason not to have more than one account," says Euretig, who adds that a lot banks waive fees if you use direct deposit or maintain a minimum balance.
On the other hand, freelancers, the self-employed and the unemployed may find it difficult to manage their cash flow and keep minimum balances. If that's the case, Euretig says it's a good idea to go with as few accounts as possible.
Are multiple accounts more secure?
These days, it's hardly news to hear about a security breach at a financial institution or an instance of identity theft. But, in addition to taking the usual precautions, it may make sense to double up on the number of banks or credit unions you belong to, Johnson says.
"The average person only needs banking relationships with two financial institutions," Johnson says. "One institution should have your primary checking and savings accounts, and the other should serve as more of a backup or secondary institution. The account at your secondary institution should be available just in case you are temporarily unable to access your accounts at your primary institution."
But, while it's good to have a backup, consumers should remember that a secondary institution is only there for access in case of an emergency. Assuming the depositor has less than $250,000 in the account, the money is insured by the Federal Deposit Insurance Corp.
"From a liability perspective, you'll be made whole either way," says McCloskey, who adds that individuals with more than $250,000 should definitely look into using multiple financial institutions, or make sure that the ownership title on each account reflects a different depositor in order to qualify for FDIC coverage.
Will there be more fine print?
Whether you use a bank or a credit union, you've doubtless encountered a lot of fine print chocked full of legalese. Whenever your financial institution amends its terms of service, you will receive a new copy. The more accounts you have and the more financial institutions you use, the more legalese you're likely to see. Plowing through that documentation is a headache, but it's probably not a good reason to streamline your accounts.
"Most people probably aren't reading the fine print on the first account, so I'm not sure it will make a difference if they have more accounts they aren't reading the fine print on," Euretig says.
But, while he concedes that it's probably the weakest reason for streamlining, McCloskey points out that like every other question, "It's about how much you can manage."
Typically, banks make an extra effort beyond sending new terms of service agreements if they plan to make major changes that cost their clients money, McCloskey says. But even if the bank goes beyond the legally required minimum notification, keeping track of changing rules is a reality these days, and it's one that might be more difficult with too many accounts.