The availability of high interest rates in the current generation allows almost anyone to earn more than 5% with a standard high-yield savings account. With the emergence of digital banks, savers now have numerous options to choose from. These banks have significantly reduced their overhead costs in order to offer APYs that were previously unimaginable.
While it may seem tempting to open multiple savings accounts through easy app downloads, spreading your money across various accounts may not offer any significant benefits when it comes to compounding your deposits, according to Nick Craven, a 15-year banking industry veteran.
One Is Enough for Most People
Nick Craven, senior vice president of commercial and consumer banking at TAB Bank, believes that having just one savings account is the best approach for most individuals. He emphasizes that simplifying your financial life makes it easier to track your progress towards your overall goals.
Holding multiple accounts does not increase the amount of money you earn or expedite compounding. The key is to strive for the best available yield, which can only be achieved once. Managing multiple accounts adds complexity and increases the likelihood of mistakes and fees.
In addition, maintaining multiple accounts increases your exposure to hacking and other security risks. Moreover, spreading your money too thin can dilute your savings and result in falling short of tiered-yield minimums. For example, CIT Platinum Savings offers an impressive 5.05% APY, but only for deposits of $5,000 or more. If your account balance falls below that threshold, the rate drops to just 0.25%.
Clearly, there are several reasons why maintaining multiple savings accounts may not be advantageous. While some argue in favor of having multiple accounts, the alternative of using saving account buckets in a single place seems more practical.
Create Buckets, Not Accounts
FinanceMaster.org spoke with several experts who suggest that opening separate accounts for each savings goal can make it easier to track progress. However, using buckets within a single savings account can achieve the same purpose without the hassle. Buckets allow you to isolate your goals, set up automatic contributions according to a schedule, track progress easily, and make contributions or withdrawals without affecting other goals.
Pick One Right Savings Account and Make the Most of It
When researching savings accounts, it is important to consider savings buckets as a feature. However, the most crucial factor to consider is how effectively the account puts your money to work. According to Craven, a high-yield savings account is the best option for almost any circumstance.
Several banks offer APYs of 4.5% or higher, with some going over 5%. Craven’s own TAB Bank currently offers a hefty 5.27% APY, which is 11x the national average and one of the best rates in the industry. Regardless of the bank you choose, it is imperative to carefully read the fine print.
Care should also be taken to select a bank that does not penalize frequent transactions, payments, or withdrawals. While federal regulations previously limited savings and money market accounts to no more than six transactions per month, these restrictions were lifted in April 2020. However, some banks still charge fees for excessive transfers, so it is important to find one that doesn’t.
Occasionally, More Than One Makes Sense
There are only a few scenarios where maintaining multiple savings accounts would be wise:
- Individuals who are wealthy or super-savers with deposits exceeding the standard FDIC coverage of $250,000 for a single account.
- Those who want to back up a checking account with overdraft protection with a separate savings account.
- People who don’t want to close an existing savings account that offers preferable rates or perks exclusively to customers with multiple accounts.
- Individuals who have a joint account with a spouse or business partner but want an independent account as well.
- Those who are pursuing an especially lucrative sign-up bonus.
However, for most people, it is wise to select the one savings account that suits them best and make the most out of it while interest 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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