Multiple Savings Accounts: More Money, More Problems?

If ever a topic could provoke a couple to fight, money is the most likely. And even more so? How to manage that money. The advice given to many about how to pay down debt or save for a specific event, like a wedding, anniversary vacation or new house, is to create separate savings accounts. Some use savings accounts like the penny jars of their youth - sloughing loose change out of their pockets into jars to save up for new Star Wars figures. They move relatively minor amounts from refunds or unexpectedly low costs on budget items (e.g., an early spring that reduces heating costs might save $500 over a few months) into savings accounts and use those for specific events. But can you have too many accounts? Is there a price to pay other than marital harmony or peace of mind? Here we talk about savings accounts, but we mean the collection of interest bearing relatively liquid and low risk options that currently exist, which includes savings accounts, but might also include money market accounts, or other products.
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While most people know to keep a savings account with three to six months’ worth of expenses in readily liquid form, nearly one third of Americans have no savings account. Others rely on credit for major purchases, where they could be using multiple savings accounts. But for those who can save, saving differently might be worth thinking about.
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Some financial advisors argue against multiple savings accounts. Obviously, those who are struggling to cover all of their fixed costs should be focusing on how to increase earnings and decrease fixed costs to create a budget that has room for savings. And those who have variable or seasonable income may not be well suited to multiple savings accounts as their budget may require moving savings into checking and back repeatedly over the course of a year. Others who might not be suitable for the multiple account approach may be those who are too frequently tempted to put their fingers in the cookie jar, so to speak, by dipping into savings to cover non-emergency items.
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Multiple accounts are also a no go for the disorganized. Keeping tabs on multiple savings accounts will be too much to bear for those who struggle to keep track of their basic finances, such as paying bills on time, not over drafting their accounts, and planning their taxes appropriately. Those individuals should stick to the basics, and consider, where possible, seeking advice about how to simplify or automate their finances.
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The multiple account approach is also inappropriate for those who may struggle to keep the minimum balance for each account at the required level. That can be especially true for those whose options include better interest rates on higher balances. For example, having two savings accounts with $5000 in each at a rate of 0.5% interest makes less sense than having one account with a balance of $10,000 at a rate of 0.75%.
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For others, multiple savings accounts works wonders. Those who have multiple savings goals - vacations, weddings, and a new computer - in a relatively short time horizon - one to five years - will benefit from the multiple savings account approach. Having multiple goals can act as a multiplier on the drive to save and stick to budgets. Multiple goals also means multiple hits on the achievement center of the brain. Instead of just seeing one goal come towards completion, the account holder sees multiple achievement loops.
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Multiple accounts work well for those who need emergency funds but also might want to save for vacations at the same time. For those who are saving for larger purchases, like down payments on houses or expensive weddings (above the $30,000 average), having multiple accounts may also help insure that the total of all the accounts is insured by the FDIC.

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