banking

How many bank accounts do you need?

Most people need some sort of checking or savings account, whether it's at a traditional bank, credit union or brokerage company. But most people don't need multiple bank accounts that serve more or less the same purpose.

Indeed, there are good reasons not to open extra bank accounts, even if an interest rate bonus or other attractive perk is on offer, says Conrad S. Ciccotello, associate professor and director of graduate personal financial planning programs at Georgia State University in Atlanta.

"The more accounts you have, the bigger the risk of identity theft and the more monitoring you need to do. More accounts also mean more maintenance fees and more potential for inactivity fees or overdraft fees," he says.

Bank account fees add up

Fees are a top concern. That's because multiple small fees can -- and do -- add up over time and have "a corrosive effect" on the account balance, Ciccotello says. Consider that a $3 monthly fee on one account adds up to $36 each year. Multiply that by, say, three accounts and the total jumps to $108. The easiest way to save $72 is to not open those extra accounts.

Years ago, people who had large sums of money on deposit at one institution often had carte blanche to open multiple accounts on which the fees would be waived, says Gregory B. Meyer, community relations manager at Meriwest Credit Union in San Jose, Calif.

But today, few institutions are so generous. One reason is that banks incur costs for paper, printing, postage and processing to send out monthly accounts statements and those costs put another dent, however small it may seem, in the institution's bottom line. More loans are, in fact, more valuable to a bank than more deposits are.

More accounts mean more small print

Another problem of multiple accounts is that different banks have different policies with respect to deposits, payments, withdrawals, interest rates and so on. Someone who opens multiple accounts at different institutions and becomes confused about the different policies can easily incur extra costs for a long list of services or infractions.

"Multiple accounts in multiple places means multiple disclosures in fine print," Ciccotello says.

Some people try to use multiple accounts as a substitute for proper bookkeeping, but that's not a good practice, says Meyer, who saw the pitfalls of this approach during his 23 years in banking operations.

"A lot of people had rental homes, and they had a separate account for each home, or they had an apartment building, and they had a separate account for each renter," he says. "These are really people who just don't understand how to do proper bookkeeping."

When to open another account

That said, there are a few situations in which multiple bank accounts make sense:

  • An account receives special income tax treatment. Some types of education, health and retirement savings accounts must be held separately to get the tax benefit.
  • An account is held jointly by a parent and child. This arrangement allows the parent to observe the activity on the child's account and "have that conversation about money that's important to have with young people," Meyer says.
  • Savings are invested in a so-called "ladder" of certificates of deposit, or CDs, that have different maturities. A CD ladder can help to reduce interest rate risk.
  • Spouses have privacy, spending or coordination issues that necessitate separate accounts instead of or in addition to a joint account. Spouses who have multiple accounts should be aware that problems such as a security breach that affect one account can affect the other spouse as well.
  • A separate account that is used for a small business.

The bottom line is that most people should "fight the temptation" to open more accounts and reflect on whether the accounts they've already opened are necessary, Ciccotello says.

"If you can open one less account," he says, "do it."

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