[Please welcome my friend, Chenell, today from Bright Cents. While I typically like keeping my accounts super simplified and streamlined, I gotta admit it’s not the best for goal setting and motivation. I learned this fast when we opened up a new account for our Challenge Everything money and it’s been a total game changer. Take it away, Chenell!]
When we talk about savings accounts, we generally think higher interest rates are good, emergency funds are great, and you only need one of these accounts and you’re done.
This isn’t exactly true. I used to be the same way though – I had one checking account, one savings account, and thought that’s all you ever needed. Well, I recently stumbled upon a method to savings that I find absolutely awesome and wanted to share it.
If you only have one or two accounts, think about how many different goals or upcoming bills you are currently saving for. My guess is you have more than one or two. Are you saving for an upcoming vacation, a yearly car insurance bill, money for a car you might need in the near future, an emergency fund, etc.?
Right now, I have 8 different savings accounts. Why on earth would someone need so many different accounts just for saving money and complicating their life even more?
Having one large sum of money set up to save for multiple goals leaves too much room for question marks. Based on personal experience, it also slows your saving tremendously, which then makes accomplishing your goals take even longer.
Here are six reasons why having one savings account = BAD.
1. 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.
2. You’ll forget what you were even saving for
As a human, it’s quite difficult to remember every single thing we’d like to. “When did I pay that bill last? When is the mortgage bill due? What the heck was I saving this for??” We are pretty terrible at the whole memorization thing.
Having nothing to remind you of what you’re saving towards leaves a much greater chance that you will forget at least one of those things.
3. 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?
Here is an example of one of my savings account nicknames:
It includes the name of the bill, the amount needed and the date it’s due. This makes it very hard to forget what you set out to do. (EDITOR’S NOTE: Remember our post on financial triggers? :))
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.
4. 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.
5. You don’t really know how close, or far, you are from achieving a goal
The total amount needed to reach your goals might be something like $50,000. Yet when you have them all in one account, you don’t really know how far you are from achieving each goal. If you’ve never kept track of your savings before, (clearly, this doesn’t apply to the Budgets Are Sexy crew) you could look at your $5,000 total savings account and think, “wow! I’m doing really well” – when in reality, you’re only 10% of the way towards reaching your goals.
You could end up getting comfortable with the amount of money you’re saving. Once that happens, it’s going to be much harder to increase your savings when you feel you are already doing well.
TIP: Are you a Mint user? You know that section called “Goals” where you can set a goal and see how close/far you are from reaching that goal? I always had these budgets set up but they were linked to accounts that had more than one hypothetical goal attached.
Having these separate accounts makes it SUPER easy to utilize this feature to it’s full potential. Since you now have an account set up for each goal, you can link that account with the goal and accurately track how much longer it is until you reach that goal. AWESOME.
6. You won’t put yourself in a last minute crunch
Ever forget about a sizable expense until the bill came, and then made yourself crazy trying to figure out how in the world you were going to come up with the money? With this system you won’t have to worry because you already know that you had planned for that expense. It saves yourself the headache and from maxing out your credit card in one shot.
But am I allowed to do this?
Many banks allow you to have multiple savings accounts without any additional charges. Double-check that your bank functions the same way. Some banks do have minimum deposits, which is a crappy practice but it happens, so CYA and give them a call.
[EDITOR’S NOTE: I asked Chenell who she uses for her savings, and she said Ally Bank – “because of the almost 1% interest rate haha!” ;) I know other banks are catching on to this multiple-savings strategy too, something ING Direct (now Capital One 360) rocked back in the day. I have both my savings accounts at USAA and I’m sure I could open up more too if/when needed.]
What if my goals change?
The nicknames on your account can be altered at any time, so if your goals change you can just log in and have everything updated in no time.
I found that having one big pot of money is just way too confusing. Having multiple savings accounts has saved me time, hassle, and kept me from many of those hectic situations.
Anyone else successfully saving with multiple accounts?
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PS: Here are 3 more tips to Chenell’s saving strategy if you wanna learn more!
Chenell runs Bright Cents, a personal finance blog that focuses on helping people get rid of their debt, especially student loans. You can find her on Twitter, Facebook or via email at Chenell at BrightCents.com.
[Photo by james vela]
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I used to have only one savings account. And, one advantage I experienced is that I forgot how much I saved monthly or the amount of money prior to my salary. Thus, I lost in tracking my savings. It just mix up what I was saving for. It was like pointless and made me discourage to push on with saving. Thus, I decided to get two another savings accounts to allocate my savings for different purposes.
I experienced that same frustration when I had one savings account, Jayson. Trying to manually keep track of what I was saving for just didn’t for me. I found that while having multiple savings sounded more complicated, it was actually the best way to simplify my savings automation strategy and helps me stay on track. It’s good to know I’m not alone! :)
And this exact reason is why I use YNAB I know exactly how much I have budgeted for each one of my savings goals.
+1. DH and I have one savings account, but I chart how much we have in each fund in the “Memo” section of the account. When we paid for our wedding recently, we knew exactly how much money we had saved for the wedding and budgeted accordingly. However, having one savings account keeps our finances fairly minimalist, even as we account for these multiple goals.
Cool! Didn’t know that about YNAB but a huge fan of them. Jesse – their founder – is pretty bad ass. Great guy (and idea) all around. Thanks for sharing how y’all use it!
I’m completely with Chris on this one, because I’m a member of the YNAB cult as well. One savings account and one checking account, both earning interest – less to juggle and reconcile each month. I have my budgeted categories for my savings goals listed, and even have the goal amount listed in the category name (ie: “Vacation 2017 – $8,000”).
+1 Cate. I do the exact same thing. I don’t use my account balance to tell me how my money is doing; I use my budget categories.
Exactly. No need to have multiple account. Even without YNAB you can always use a spreadsheet. Why have multiple accounts?
I agree with all my fellow YNAB users. It reduces the need to have so many savings accounts, and give you complete visibility to where all you money is going. YNAB changed the way I budget and has helped me successfully save for everything. (Downpaypents to car insurance) it is also easier to keep track of where money is coming out of, if you only have 1-2 saving account.
We are not saving for anything per se right now. Just paying down debt. But the way I budget, I say we are saving a certain amount per paycheck for car insurance, which we get a discount for paying once a year. Same for our health insurance deductible – I “save” a little all year to cover next year’s deductible. Trouble is, I save it in our checking account. Wr just moved to Ally and that’s been my goal – set up funds for these expenses so I never accidentally touch the money and so it’s easier to see if I have extra in my checking account that I can put toward debt.
I’m right there with you, Kirsten! I’m working towards paying off the remainder of my $72k student loan debt, so savings are at a minimum. However, even just keeping tracking of my car insurance and other annual bills has been so much easier with multiple savings. I use Ally as well, and they make it quite easy to use this strategy – you can have an additional savings account open in about 3 minutes. :)
This is why I personally like Capital One 360. You can have many different savings accounts (up to 25). They can all be managed under one umbrella savings accounts. All are currently earning .75% interest. I have an Insurance Premiums account, Home Repair account, Car Repair / Title account, a Vacation account, et al. I direct deposit into the main 360 Savings account and then set up that amount to be distributed into each of these sub-accounts so that I have money ready to pay them when they are due. The accounts are distinguishable so that I can clearly see the balance available to me at any given time.
Thanks for the insight, Darrin! I actually use Capital One 360 for my checking account now, and only went to Ally for the (minimally) larger interest rate. Definitely good to know about them having sub-accounts in the overall savings account. I’ll have to check that out!
I have more than one savings account but not for the reasons you listed. I keep track of what i’m saving for in a spread sheet but keep most of my money in a large savings account with Capital One 360. My other account is my emergency fund at my local bank. This way if the water heater blows, I have the money easily accessible to pay
#Spreadsheets4Life
I can second this strategy. We have multiple savings and brokerage accounts setup to help us tackle our specific needs: General savings, emergency fund, money we plan to invest, etc. If it was all in just one pool of money it would be difficult to properly make sure funds were going where they are really supposed to go.
100% agree with you here, DJ. Plus, how would I know which part of the money to attribute the 10 cents of interest I gained this month?! :)
We have two saving accounts. The second is used for our e-fund and short term savings. There is no debit card associated to this account the only way to access the money is to drive to the bank.
Capital One 360 does indeed still have this capability (for free).
1 savings account + YNAB. Problem solved. You allocate all your money into categories and disregard the balances in y our accounts.
Exactly :)
That’s what we are doing too!
Similarly, 1 savings account + 1 excel spreadsheet.
I second ynab as a way to make goals and meet them and just have one savings account!
While it may not require multiple physical accounts, separating the money in some way makes keep tracking of your goals so much easier. I’m definitely going to check out YNAB after reading all of these. :)
We currently have three savings accounts (Capital One 360) for this very reason. We have different things we need to save for, so to me it only makes sense to have different accounts!
Very good post. Some years ago we also faced the same challenges but since we started using YNAB (You Need a Budget – google it) it got sorted. YNAB adds an abstraction layer on top of your accounts and all the money is managed as one big account. To overcome the “bad” things you listed on your post we created saving goals categories on our YNAB budet where we allocate monthly money. Each category is a saving goal. In that way we can completely understand for what we are saving for and how far we are.
btw I’m not affiliated with YNAB I’m just a big fan :)
Cheers,
– Mr and Mrs Geek
YNAB is super popular in these comments today! I think I have to up my game and finally get a review of them on here… it’s only been 7 years since I’ve known about them, haha… #BloggerFail
Ha ha, yep it’s been a game changer for me too.
I’m a relatively new user of YNAB (still in the trial phase), but it has definitely helped solve the types of problems listed in this post. Using YNAB, it actually complicates things having more than one or two accounts. I went from having six accounts to two, one checking and one savings, and it’s still easier to track all my different savings goals.
Some people have made the comment that they can do the same thing with a spreadsheet, which is absolutely true, but YNAB wraps it all up in a tidy package where I don’t have to think about formulas or anything like that. I’m willing to pay for that convenience.
In my opinion, YNAB definitely deserves a J. Money review. I think you’d like what you see!
Once you review YNAB…and I mean really review it…so put in a good 6 months of use into it…you’ll have a clear grasp of how awesome it is.
The 4 rules keep you on target, guilt free and bail you out when life happens.
Scarcity is clarity, and YNAB’s budgeting style is more of a fit to the real world.
Whatever you use now to budget….YNAB is better. Everything about it is logical.
This is why I use/love SmartyPig.com. You set up one “account” but you can make as many goals as you like, so you login and see one total balance but then it is broken down by goal. I use it for all my savings, big and small goals, just set up automatic transfers from checking each time I get paid and its all into the correct goals for me!
I used smarty pig for a long time until I had an emergency. I had to borrow money from a friend until Smarty Pig put the money in my account. (I needed $3,000 the next day).
Smarty Pig! I didn’t realize they were still around… used to be super popular back in the day.
I’ve been using SmartyPig.com to do this for the past 5 years. They are an online savings Bank that links to your regular checking account for savings transfers. You can set up different savings goals under one account and once you set a finish date, it’ll let you know how much you need to save each week/bi-week/month to reach your goal by that date. They also don’t allow you to dip into your goals to pull out little amounts (eg. If I have $500 saved and I want to take $100 out, I would have to close that whole goal and take the full amount). This encourages me to leave it until I have the full amount I’ve been saving for! I love the system and I always recommend smartypig to all my friends!
LOVE smartypig!
That’s pretty cool! Great way to force you to keep saving :)
PNC Virtual Wallet allows you to maintain one savings account and allocate the money in it to multiple goals. An easy want to keep track and stay simple.
I use Virtual Wallet for my daily checking and very short term savings. I have separate dedicated savings account at Ally for the 1.45% since PNC cannot come close to that rate. I am a big supporter of the Virtual Wallet in getting people out of debt and away from paycheck to paycheck since it can visualize and show you on the money bar what should be coming out within the next 2 weeks and you know you cant spend. It also turns bright red when it notices a possibility to not have money so you cannot ignore it.
Nice! Never heard of it until you two.. Love that it turns bright red like that haha… it’s the small things!
We have separate accounts for emergency, car, and kids’ college (though those are funds), but the overflow goes into emergency and that can run into some of the problems you mentioned. We probably will clear out the excess when we finish off the mortgage with a lump sum (since we won’t need as much emergency savings without a mortgage). But I agree that it’s a great idea to have separate savings accounts for different goals. One question: where do you draw the line & simplify, vs. designate a separate account? Do you have a pattern for deciding that?
I typically only will add a new account if this is an expense that is at least a few hundred bucks, and is at least 3 months out. As I grow wealth, that few hundred bucks quota might increase, but for now, it takes some time for me to save that amount. Examples are travel, car insurance, annual home expenses, emergency savings, and a Roth IRA. I also had one this year for weddings, since 4 of my friends got married and I was in 2 of them. I made a calculated guess, and just started saving money every paycheck. It worked out well.
Sometimes I can save a few hundred bucks all at once. However, I don’t like saving money too far out from the time a bill is due or a goal’s end date, because that money can be used to save me interest in the meantime, by way of paying down a student loan, or other debt, etc. Instead, I just break that payment up into pieces (based on how many paychecks I’ll receive between now and then), and save that way. It’s all about personal preference. :)
If there was a pattern, for me it would be the bigger and/or the more important the goal, the more likely it is to get a savings account. For example: House, Travel and Emergency get their own line item, but car insurance, renters insurance, car tabs can be lumped into one account for “Annual Expenses.” I use(d) a separate account for my IRA and student loan payment transfers. That way I knew those accounts would get funded and paid no matter what.
I’ll heartily second this approach! We have around the same number of savings accounts – somewhere around 8 or 9. We have them split between USAA & Discover Bank. I know it seems like it’d make life so much more difficult, but it actually makes things considerably easier because we know what we’re saving for with each one, have automated deposits going to many of them and having that visual reminder (in having the nickname) motivates us that much more to get money into it.
I used to have multiple savings accounts. Some were designated for one purpose (emergency fund) while others had multiple purposes (vacation, new car fund, etc.). I kept track on a spread sheet. Now we have one account + YNAB (as Bethany posted above) and YNAB keeps track of all the different savings goals for us. I don’t pay attention to the balance of the account. I pay attention to my balance according to YNAB. It’s SO much easier.
I have a separate savings account for my freelance taxes. That’s one money “pot” I really can’t afford to raid prematurely.
Hah – yup. Same here. I’m sometimes tempted to pay quarterly taxes MONTHLY just so I can hurry up and get that $$ where it’s supposed to be! :) This is one of the parts I miss the most about the ol’ 9-5. Automatic tax payments were awesome (and I didn’t appreciate it a single bit back then, durf)
Argh! Just today I wrote about keeping it simple and streamlining accounts – and not second guessing my own decisions. Then I read this excellent post about having multiple savings. I agree, it IS motivational to set goals and open the account that declares the intention. Yet, I find that it is distracting me from the ONE BIG GOAL which is to pay off this debt. There’s a real end date to that. Maybe after I’ve made that last payment I’ll be able to open multiple accounts – because I’ll be able to focus on other goals.
Thanks, MJ! I can see what you mean. Most of the things I’m saving for aren’t really “goals” per se, but are bills/expenses that I will have in a few months. If I didn’t have a separate savings account for my car insurance, I would be scrambling every 6 months to find the money to pay it. I know this because before this year, that’s exactly what I did.
I agree with you about staying focused on paying off debt. Stick to whatever strategy is working for you, and good luck with the debt payoff!
Haha… sorry MJ! I second going after your debt in full force though. You pull that off and you’re golden no matter how many savings accounts (or not) you have :)
I love my separate savings accounts with CapitalOne 360. I think I have 8 right now. It was very helpful during my debt repayment because depending on the nature of the savings account, I could or could not touch it. For example: I struggle to spend money on myself, so I created and funded an account just for that. When I was in the middle of my debt, I decided that the best way to treat myself, was to wipe out more debt. So I drained it. On the other hand, Travel money is sacred and can’t be used for anything but travel. By keeping this in a separate account, I always know how much I have and it was protected.
Other accounts I have: House, Emergency, Large bill I got 3 weeks ago that I must save/allocate for, and Retirement: This is just for transfers to my IRA. By having a separate account, I can’t get overzealous and transfer more than I should, but also it covers me during the 3-4 day lag so I don’t forget the money is already spoken for. I had a separate account just for my student loan transfers as well.
Multiple savings accounts are the best.
I like the “spending on yourself” fund in general regardless of people’s situation. If you don’t take a break here and there and do something fun you’re liable to burn out!
We use PNC and they allow for multiple goals but it’s all moot since we have budgeted every single dollar we have with YNAB. So I know exactly where I am on all of our goals and we’re able to plan WAYYYYYY ahead (like a year and a half sometimes like for my Sister In Law’s wedding which we started putting $100 to the side per month for the past year).
Very good points though if you’re not used to thinking this way.
A year ahead – that’s hardcore! Haha… I don’t think I’ve ever planned that ahead. Well, except for maybe retirement and baby college stuff… but that doesn’t count :)
Hey J — Our USAA accounts have *terrible* rates, and we use them only for our life happens fund. We keep most with Ally, though even that is mostly a holding fund to dollar cost average over to Vanguard. Chenell — These are great tips for savings beginners. Thanks! We’re past most of the major goals, and are now solely focused on early retirement. So while we have a bunch of investment accounts, we find that two savings accounts do the job.
Thanks for the kind words! Not everyone needs 8 accounts :) And I’m sure once my debt is paid off and I have more money freedom, I’ll be right there with you!
Much luck on the early retirement front! I’ll be following you closely on the blog! :)
@Our Next Life – I’ll agree the rates aren’t the best (though also not the worst), but it is nice to have most of my accounts all under one roof. Plus the “good” rates out there aren’t that great anyways :)
We only have one savings account, but the multiple-account approach sounds appealing.
I have one checking account, no savings account. I use YNAB and have no problem knowing what my money is for.
Oh wow – no savings at all? That’s minimalism right there!
I kinda like it actually :)
Same here. My checking account pays better interest than my savings account and YNAB allows me to separate my goals including sinking funds, emergency funds, and student loan payoff. I highly recommend the program. Net worth has more than tripled in the 3 years we’ve been using it. Life changing for us really. As a bonus it makes credit card travel hacking much easier to manage (no danger of overspending since all spending categories are predetermined).
I have used both methods. Currently, I have several “high-interest” checking and savings accounts, as well as many credit cards that I pay off monthly. I am working to super-simplify. I opened most of the accounts for sign-up bonuses, which were nice. However, simplifying the number of accounts means that I spend less time shuffling money between them when it comes time to pay the bills.
I have one savings account that holds my emergency fund. Everything else after expenses goes to IRA and after-tax brokerage account. If I have lumpy expenses, I just invest less or more that month. I like having everything in one spot, and having multiple savings accounts would drive me nutty personally.
I totally agree with this post. Savings accounts with defined purposes prevent unconsciously robbing from one goal to fund another goal. I have five savings accounts set up at Ally to take advantage of the goal-setting on Mint:
1. Emergency fund – (4 months of average spending)
2. New house down payment
3. New car fund – (I will pay cash)
4. Vacation fund
5. BudgetsAreSexy Spoils
The first three have been around for a while, as they take a while to get to where they need to be. Then I added a vacation fund. The last one is for the spoils of my “challenge everything” war. I’m no pro blogger, but by just cutting out the middleman on my car insurance and changing internet companies, we’ve saved $680 in less than 6 months (started on 10/31/14).
By the way, we are working toward buying a house (I know, you like renting). The paperwork to prequalify for a mortgage required statements from our bank accounts. Ally prints bank account nicknames on the statements. So “BudgetsAreSexy Spoils” was part of our official prequalification paperwork. :)
BEST. COMMENT. EVER.
You, sir, are my new favorite person of the week :)
Grrr. When I was something like 14, I tried opening a 2nd account for many of these reasons. The lazy teller didn’t want to do it and just told me to track my different incomes by hand.
I currently rock accounts with FNBO Direct, Ally, and my local CU.
Wow. Sounds like a very confusing and convoluted way to manage your money.
I keep a budget, so I know what every last penny is assigned to do. As a result, I can keep my number of accounts low.
Keeping a budget is not time consuming at all for me. I personally use YNAB. It takes me maybe 3 seconds to log each transaction I make against the category the money has been assigned to / and the account the money is stored in. And then each month, I spend maybe 30 minutes adding in my automatic transfers / deductions and reviewing all of my statements to make sure I didn’t make any mistakes. The last part of my budgeting process is assigning all money I made that month to the next month’s budget.
Like I said, I spend maybe 3 seconds logging each transaction as I make them. And then a 30 minute block of time, normally on the first of the month, for routine maintenance of my budget.
While I use YNAB because of its ease of use and because I can link it up to my smart phone, anyone could use a different program or run one manually using a spreadsheet or notebook.
But the benefit of a budget is I have complete control of my finances. No need trying to remember what all of my money is supposed to be doing for me. I have it all documented. Every penny is accounted for and has a plan for its use.
I have three. One for home and car insurance, one for property taxes and one for emergency fund. It works great for me.
and I forgot my digit account ;-)
that’s the best one ;)
Right now I’ve got two savings accounts – one for my emergency fund and one I use to set aside my tax money (I’m self-employed.)
Though once I’ve got my emergency fund rounded out (which will be soon – yay!) I’m definitely going to open another account to save towards my next goal, and I’m even thinking of opening a travel savings account where a small percentage of my income would go each month, that way I make sure I get to do something cool at least a few times a year.
I agree with a previous poster…1 excel spreadsheet solves all of this (although I’ve done both ways in the past). In order to create an initial savings or to save for individual goals, the separate accounts worked great but once I got to a place where we had enough to cover just about anything that could come up, it was time to consolidate to one account. For a while, I broke it all down inside an excel spreadsheet but I found over time that wasn’t even needed…By not tracking every line item of it anymore, it’s made me relax about it too. I will say that I keep more than one savings account in order to maximize returns or to keep funds separate of each other if needed (i.e. Baby college savings and CU accounts that pay higher returns for first $___ deposited).
I used to track every penny and line item too – but not anymore. I like managing my money in clumps for ease of mind and simplicity. I probably spend a tad bit more doing it that way, but fortunately that’s okay when you’re money’s managed well :)
Absolutely right. My bank lets me have many different accounts. All I have to do is keep a minimum balance in each one. No fees, but no interest, and that is okay. These accounts are merely holding stations. I use them to meet my goal, and then I move the money to where it is intended.
I actually give each account the nickname of the goal for which it is intended, ie “reserve fund” or “trip to someplace.” Not only that: I actually put the dollar amount of the goal in the title. This way, every time I check my account balances, I am reminded of my mission.
does it literally say “trip to someplace?” Haha…
if so, that is awesome. perhaps you’ll substitute in FINCON later this year so we can meet? :)
A “trip to someplace” is a good goal when you simply need a change of scenery:)
A trip to FINCON? That would be delightful! Would be great to meet you. We will see.
I can’t lie, one of my 7 is named FinCon this year :)
I have three savings accounts and three checking accounts after switching over to Learnvest’s method of budgeting, which revolutionized my relationship with money. I have a checking account for fixed expenses where my paycheck is deposited and I pay all bills from (Ally free interest checking), a checking account for weekly flexible spending where I transfer in the amount I budget to spend for the week on “flexible” items (also Ally), and a checking account with a local bank where I can deposit cash and transfer it to my online accounts. I have an Ally money market savings (.85% interest) for my emergency fund so that I have access to it with a debit card (useful in an actual emergency), a regular Ally savings account (.99% interest) for my vacation/travel/fun fund, and a Barclays savings account (.99% interest) for irregular bills like auto insurance. I can’t easily get to the money in Barclays so there’s no temptation to put it toward other things, but I know when my bills are due so I can save up the money and plan ahead with a transfer.
Oh, and I have my digit account!
what are you going to use your Digit $$ for?
always curious to see what people say :)
I think I’ve decided that for each $100 that accumulates in my digit account, I’ll move it to either my emergency fund or fun fund, depending on what needs a boost. I am closing in on my first $100 and I’m going to move it to my emergency fund so that it starts earning a little bit of interest at least and will put me that much closer to my end goal.
Love it.
We just have one savings account. I have thought about having multiple accounts and this post just makes me think I need to just do it!
I am a HUGE fan of multiple savings accounts for my clients, the ones who have specific goals and specific savings accounts associated with those goals have the most success than my client’s who have one general savings. I work with clients with all banking relationships and just about every bank allows you to set up multiple savings accounts easily and at no additional cost, so there is no reason to not try it out at least for a period of time.
Ooooh that would be an interesting research paper/project actually. The %’s of who saves more, and by how much on average, between those who have just 1 acct and those with multiple. That’s pretty cool you already see a correlation just from your own clients!
I am definitely in the minority here, but I don’t agree with the multiple account method. I think it’s like keeping separate refrigerators in your kitchen to store different meals. I can open the door and know that the steak is for dinner and sliced turkey is for lunch and that if I drink all of my milk at dinner I won’t have any for my cereal in the morning. My savings accounts are the same way and I just track the cash flow over time so I know how much expendable income I have.
hahahhahaha…. oh man, you crack me up sir.
Looks like I am a bit old style, keeping track of all saving purposes in an xls file.
I do have more than one savings account, but that is for other reasons
1- diversifying the risk of a bank failure (In Belgium our government needed to bail out 3 of the 4 major banks in 2008)
2- I have some money that I want to have easy access to. Not all savings banks in Belgium offer that.
3- I like to explore banks, see what they offer and be informed of their offers.
I have been thinking lately to simplify, but reason 1 stays for me a good reason to have more than 1 account.
Amber tree
oh damn. yes, VERY smart in your case!
I used to save in multiple accounts before. But that was waaaaaaaay before, when I was spending more than I should. Since my monthly spending now is much lower than my monthly income we can accumulate cash quickly to pay for any large expense by the time the bill comes. It’s not because we make a lot more money than before, it’s just that our spending has been cut drastically. We choose to spend only what brings value to our experience after essential spending. We do have a huge goal to save to buy our house lot by next year so that might need it’s own account eventually. We do use the Mint goals tab a lot. Great article! I’m for anything that gets your finances in order!
I think you bring up an EXCELLENT point actually. If you’re money’s on lock and that gap between income and expenses is wide with every paycheck, it’s a damn good position to be in and affords you a lot more freedom and ease with goal setting. Congrats on being at that point!
This makes me feel better about the various accounts I have. I sometimes wonder if I have too many but I do practice this strategy as well. In addition to our regular checking and saving to cover any potential overages, we have our “Aruba” account that we use for vacations (currently well funded), a CD for our emergency savings, a power account for additional home needs such as home improvements (we need to replace a fence this summer), and an account at Ally for our next investment property savings. I know that any money in that account is specifically set aside for the property purchase so any extra money at this point goes into that savings account. I love tracking that goal separately and this enables me to do this.
Yes!!! Someone that thinks like me! My husband thinks it’s to complicated having different accounts but it simplifies things for me. We have 5 savings accounts and would like more but my husband said 5 is too many!! A savings account for each kid, a house fund, and emergency fund. We also have a couple of CD’s which are for our next car purchase.
Haha! Tell him I have around 7 so he should be happy with only having 5 :)
I have always used Quicken and loved it because I could set up sub accounts to keep track of annual bills and savings. Recently, I switched to a CU that allows me to have multiple savings accounts. The only thing is the tellers get overwhelmed with all my accounts, haha. I do like the idea of putting the due date and the amount in the name.
Tellers better recognize! :)
We just have 1 account. I’m reconsidering after this though.
As a child I had a savings account – and money went in, but never came out – because it was “for your education”. When I got to the point of needing to pay tuition, it was REALLY hard to spend that money – I’d been conditioned that money goes IN, money does not come OUT!
Once I started working, I was doing the same thing – putting money into my savings account religiously – but when it came to actually using that money for its intended purpose – I kept having mental issues in withdrawing it.
Eventually I found ING Direct and started splitting out my savings accounts into specifically named accounts – and never looked back. Now when I want to go on a vacation – I look in my “vacation” account and see what I have to spend – and because all my other accounts are funded – I can spend whatever is in the “vacation” account without any guilt whatsoever.
What a great way to be introduced to savings though! A much better habit to break than the opposite :)
I use YNAB for most of my savings goals that will happen within a year (insurance, taxes, car registration, iPad, etc). I like to keep things simple and leave all of that in my Charles Schwab checking account, which makes the account pretty big (I’m not too worried about making 0.00000001% interest). This makes things a lot easier whenever a big bill comes in as I can immediately pay it and not have to wait a few days while I’m transferring money between my savings and checking accounts.
In my Capital One 360 Savings, I have it split into only two accounts: my emergency fund and an account labeled “Vacations and Fun Savings”. These two accounts are barely touched and are only used for an emergency, vacations, or home improvement.
Last but not least, for my goals farther out in the future, I use Betterment with four different savings goals attached. I like Betterment because I can get a lot better returns on my money then stashing it in a general savings account. Betterment is goal based and it will let you know how much you should be putting in each month to reach your goals. One of my goals is to buy my daughter a car. She’s one right now. If I put $25 a month for the next 17 years the account should have about $9,000 in it. People think I’m crazy for thinking that far out.
Hah! Love that. I’m not super good about saving that far out myself (besides retirement stuff really) but always impressed with others who are. I keep hearing things about Betterment too – just haven’t stopped to really dig into them.
I love the CapitalOne360 ability to just start a new account whenever I feel like it. We have eight unique accounts, and I’m actually thinking of starting a few more to subdivide the rental accounts into security deposits, taxes & insurance, and repairs. I just hate seeing those small balances.
I’m guilty of having just one checking account, one taxable investments account, and two 401k accounts (one for me and one for Mr. Frugalwoods). For us, since our ultimate goal is financial independence, we consider every dollar we don’t have to spend as savings. I like watching it all accrue together, plus a fair amount of our liquid goes into our taxable investments. But, I definitely see the value of having different accounts for different goals–I think it’s all about finding the system that works best for you!
Yes, it’s all about finding the system that’s right for you.
“Personal” finance, right? :)
We have two savings accounts. A money-market fund as an emergency fund and another one as a savings. I categorize all of our savings in a spreadsheet, like a budget, so I always know exactly how much is going to each thing, but I find it easier to do that in the one savings account.
I use Quicken to keep track of my saving goals. It can take various amounts from different accounts to build the goal. For example, for a $200 goal, I can take $50 from checking and $150 from savings. When I do that, it shows the checking and savings account with less money, so I know for sure how much money I actually have left
That’s pretty cool. I guess you’d have to look at Quicken on the daily then instead of logging into your accounts to check on your money or else you’d get confused! Haha… And I would miss logging into my accounts :)
These are great points! I have more than one savings account for the same reasons you mention.
I use an online spreadsheet where I track how much “savings” money is in each account, and then I apply dollars from each of those toward specific goals or things I’m saving for. Example: I just bought a dining room table so I created a new line item on the sheet for a table for 1200, and applied money from each account to cover it. Then when I found a great one on sale for $700, I reduced the 1200 to 700 and reallocated the saved money to things like my emergency fund or other large line items I am building up (because I have some formulas that tell me how much money isn’t currently allocated to a line item). I use this for Roth contributions, home repair funds, car repair funds, and any big item I decide to budget for.
I also have a sheet in the same spreadsheet where I track checking account debits and credits, so I can easily move money to a bank account and then update the sheet that shows how much money is in there. And then I can allocate the funds to one or several of my goals/budgets.
Oh, and my method is free. You just need a Google Drive account and you can access your tracking spreadsheet from anywhere.
Love hearing everyone’s systems like that – thx so much for dropping it. You can never go wrong with spreadsheets ;)
Wow, interesting approach. We currently have 1 high interest savings account with Sallie Mae online bank that is our emergency fund and then two regular savings accounts (one is a overdraft protection account that my bank requires and then a general savings account). We find ourselves putting the majority of savings into the emergency funds, even though it is fully funded. As a result, we pull from that account when we have a major purchase. We don’t drop below our minimum emergency fund though, but it is tempting.
We will definitely consider this as a future savings option though.
I totally agree on having multiple accounts. I have one for paying bills, vacations, emergency fund and residual cash. Having more than one account has helped me keep my money organized. I don’t think I will ever go back to just one account.
Small money, small accounts, LOL
I have two savings accounts. Emergency Fund and Rent Savings. I paid my lease up through the end with my tax return, but there are three months between the lease renewal and my next tax return. So, I save for 9 months to cover that three months.
The next savings account will be – I think – to put a “car payment” into when the current note is paid off. Since it’s the former ING system I’m working with setting up a new savings account is crazy easy.
I use a spreadsheet for my budget and personal financial projections and even my husband’s work hours to calculate for insurance and things, but for whatever reason I like having my little savings buckets separate and clearly labeled within my bank account.I dig it.
The more you make $$ fun and happy, the more it’ll grow :) So label/save away!
I also have multiple accounts with 4 different banks. Not just savings accounts but current accounts also. 4 current accounts and 9 savings accounts haha. Don’t even know why. I did do some saving and put a direct debit into some of them. It’s taken from your wage before you even know it’s gone. That’s the best way I find to save.
That’s a lot of accounts! :)
Is it just me, or do I see a tad of “robbing Peter to pay Paul” in some of these comments? My father had a saying, “It’s not what you earn, it’s what you save.” He didn’t specify how.
Different strokes for different folks is probably the right saying for this one ;)
J$,
A long time ago, before I’d ever heard of the financial independence community, I had the idea to start up a bunch of accounts to keep track of separate things. When I’d tell people about this, they would say I was just being lazy. Shame on me for listening to them!
Years later, I said to hell with it and after finding Ally (which does not limit you), I am now starting to open accounts for individual goals (including separate custodial accounts for each of my three kids!). I still keep savings buffer where necessary but in terms of reaching for goals, I can’t think of an easier way to keep track of it all.
FM
HAH! Bad ass man. Way to get back to it and set up the system that works for you :) No shame in that at all.
YNAB solves every single problem you mentioned.
I’ve been YNABing for just over a year…I recommend it to everyone I come across.
YNAB is pretty killer – I agree.
I think people tend to make this more difficult than it needs to be. I have one savings account where we save for our short term goals. The way I keep track of the money in this account is with a simple spread sheet. The way it works is I have the money automatically withdrawn from checking and deposited into the savings account and all I have to do is update my savings account spread sheet by adding to each individual goal which basically takes me a total of ten minutes. I know exactly how much we have saved towards each goal every month and if need be I can easily move funds from one goal to another simply by making changes to my spread sheet. My method is to keep it simple and I believe having numerous savings accounts would just complicate my life to much. Now investing is a whole other ball game altogether. Take care all!
INSANE! One word for your 8 bank account dilemma….SPREADSHEET!!!! When you spread your money out among 8 different accounts you are killing your ability to cash flow. I have one account and have a spreadsheet that matches that account. Contained within the spreadsheet are categories for monthly utilities, mortgage, insurances, vacations, and anything else I might be saving for. Today I had an unexpected car repair…. $350. I paid for it out of this one account even though I had not budgeted for that unexpected expense. I knew that I had that amount covered due to the cash sitting in that ONE account and that I could “pay myself back” before the house taxes or house insurance come due at the end of the year. (Don’t confuse this cash flowing for a proper emergency fund.)
To each his own, but I will stick to the simple life of one account and ME acting as my own bank when in need!
haha… yeah, I only have two savings accounts myself, but you gotta rock what best works for you. I love some of these ideas of having spreadsheets to update/track though I don’t do any of that either. Lots of ways to handle this stuff.
Hi J$
I now not only have multiple savings accounts but they are with multiple banks, 3 to be precise and the savings are for car, emergency and holiday/vacation.
I previously had one savings account which was with the same bank as my main checking account. However, every time I logged online, I could see the savings and I found that it was very difficult not to dip into the savings, transfer a little over when the checking account was looking low etc.
It may sound like a lot of effort to maintain all these accounts but it isn’t really – I’ve set up automatic monthly payments and rarely log on to these savings accounts (except when required).
Out of sight, out of mind and less chance for me to be tempted to dip into them!
Glad it’s working for you Weenie :) Gotta stick w/ the plan that fits!
why is it dat two million can’t be saved in my savings accout
‘cuz you don’t have two million? ;)
but even if you did, you’d actually want it spread across multiple accounts (savings + investments!) to protect you more. Each savings account only protects you up to a certain amount of $$ by the government. You’d want multiple so in an event a bank goes under or whatever you’d still have your money.
Hi, i’ll be sharing your article later (around 12pm PHT) at my fb page: http://www.fb.com/investmanilacom. I hope It’s okay with you. The article is really informative and I agree with all the points you raised since it’s been my practice too to divide my savings into multiple bank accounts. — Jen from http://www.investmanila.com
cool, thx! hopefully it gives your audience some ideas to try if what they’re doing isn’t working for them!
Just read this article a few years after it was written….called Vanguard this past week. NO minimum to open a Roth IRA. In the past all our Vanguard IRA’s were Traditional (converted 401K) but we’re now opening Roth IRA’s for 2018. The only downside: in many cases if you open with less than $3000 you can’t pick your investment. Funds below $3000 go into a regular gov’t settlement fund but once you have $3000 saved you can change that.
How weird?? Never knew of that rule…
Update: talked to Vanguard yesterday. They have some funds that require only $1000 to open. The regular gov’t settlement fund is almost like a savings account & currently pays 1.35% if you have money in that.
Happy 2018!
Thanks, friend! You too!
We’re actually moving from multiple savings accounts (goals) to less savings accounts. The goal is one, but we might end up with a couple.
I’m trying to simplify and see how it goes this years. We have 401Ks, ROTH & Traditional IRAs, HSA – so it’s getting to be a bit too much.
Haha yup – exactly why I still rock only one savings and one checking too :) Well, that and I’m now much better about my finance and goals than back in the day… I do like this multiple strategy when you’re just starting out a lot.
I actually have 2 Checking Accounts and 2 Savings Accounts. The first Checking Account is for my Inflow (Direct Deposits, ect.) and the second is for my Outflow (Bills, personal spending, ect.). My Savings Accounts are an Emergency Fund and a Reserve. Though I think I’m going to open at least one more Savings for a goal Account.
Love seeing other peoples’ systems – thanks for chiming in!
This is probably one of the dumbest articles I’ve read. If you budget, you don’t need that many accounts. Y’all need YNAB.