What’s The Danger Of Only Having One Savings Account?
Having a savings account is an important step toward taking financial control of your life and reaching your goals. But is one account enough?
Maybe not. These are a few important points to keep in mind if you only want to keep one single savings account.
You will forget how much you had saved for each goal
Let’s say you decided to set up a Roth IRA account. Most Roth IRA’s require a minimum $3,000 investment just to open an account, so you start working on saving enough to open one up.
You just received a gift of $200 from a family member for the holidays, so you put it into your savings account with the idea that you’re saving for your Roth IRA. Then July rolls around and your insurance company sends you a bill. Without doing it on purpose, you might end up spending that $200 you had set aside on that bill. Congrats! You’ve just pushed your goals back another few months.
You think you’re saving more than you really are
Let’s say you are putting $250 each month into your savings account. That sounds great, right? But, when you’re saving money towards 5 different things, you’re only truly saving $50 towards each goal. If one of your goals really was to save $3,000 to open that Roth IRA, you wouldn’t have that goal completed until 60 paychecks had passed, or almost 2 1/2 years. Saving $20,000 for a down payment on a house? You wouldn’t be moving into that house for over 15 years.
When you break down your goals into separate accounts, it’s much easier to see your progress and how far along you really are.
TIP: A lot of your goals have set deadlines, like the date a bill is due, or a specific time frame something needs to be completed by. In addition, many banks allow you to add nicknames for your savings accounts, and these nicknames can usually be pretty lengthy. Do you see where I’m going with this? Why not include the due date for that goal/bill part of the nickname of each savings account?
This makes it very hard to forget what you set out to do.
If you have the space, go ahead and add the amount you should be saving each month towards this goal, and you’ve just set yourself up very nicely towards reaching it.
While the large sum may be a lot of money, you might think you have extra money to spend
Having one large pile of cash can also give you a false sense of reality. Let’s say you have $15,000 in your account and are feeling pretty good about your savings so far. Your good friend mentions the idea of this once in a lifetime trip they are going on and want you to come. “It’s only $5,000! I have $15,000 saved, I can totally go!”
If you had an “in your face” reminder of what you were dealing with, you would have realized that you needed to have $35,000 saved by July, and can’t really afford the trip.
– via Budgets Are Sexy
Do You Need More Than One Bank, Too?
If you decide you need multiple bank accounts, now you must choose if they will all be at the same bank, or spread across several. There are benefits to both, so looking at the pros and cons honestly will help you figure out which is best for your own unique situation.
Are You Likely to “Borrow From Yourself”?
Keeping your checking and savings at separate institutions takes advantage of the idea, “Out of sight, out of mind.” In other words, if your hard-earned savings isn’t linked directly to your checking account, and it takes 24 to 48 hours to free up funds, you might think twice about spending that money.
And, keeping both accounts in the same place can lead to some funky mental math: If you’re just taking a minute to check the balance on your checking account, but see all of the money in your savings as well, you’re more likely to feel like you have all of those funds available to spend, says Sklaver.
But what if you like the way having one bank keeps you organized? If the idea of checking in with accounts on multiple sites sounds like a little too much work, you can always monitor all of your accounts in the free LearnVest Money Center, where you can check the balances without the temptation to spend.
Could You Get a Better Rate?
Here’s where the making money off your bank comes in: If you’re going to park money in a savings account—say, for an emergency fund—you want to be sure to get the best rate you can.
“While brick and mortar banks are great for checking accounts, they usually aren’t offering the most competitive interest rates for savings accounts compared to online banks,” explains Sklaver. That’s why it’s often recommended that clients open a savings account with an online bank.”
If you do decide to put your savings somewhere with a higher interest rate, moving your savings account between banks isn’t usually very difficult, and most banks don’t charge fees simply for closing an account, Sklaver says.
– via Lifehacker
How many bank accounts do you have?