I may have too many bank accounts. Are you familiar with the envelope method? If not, The envelope method is a budgeting method where you put all your cash in separate envelopes for each need.
Well, I might do that with bank accounts. I have a bit of a collection.
How many bank accounts do I have?
I have three different banks with seven accounts between them. This isn’t even counting my investment accounts!
Most people only have one central bank, but having two has served me very well. The most significant advantage to having two banks is to protect yourself in case of identity theft. I’ve had my identity stolen twice, and the first time they got into my main bank account. That was a pretty awful experience, and the only thing that kept me afloat was the fact that my other bank was spared from the attack.
Why So many?
Ok, It may seem like an overload, but each bank account has a specific purpose. And I need all of them! Well, I probably could consolidate, but I don’t want to!
Transactions
Ok, let’s start with checking accounts. I have three checking accounts. The first two are for my regular monthly transactions. One gets the bulk of my direct deposit payment and I use it to pay my bills. The other gets a small amount that I use for groceries and eating out.
Big Purchases (and Paypal)
My other checking account is a staging area for big purchases. I know that I will need to buy something big every few months or so (Currently, I’m saving for a new water heater), and I need a place to store that money, so I don’t spend it on other things. This is an excellent strategy to budget for those big expected costs.
I also use this account for Paypal for some reason. It seems like my Paypal should be tied to my main account, and while that makes the most logical sense, it’s not. The reason for this is that I initially set up my Paypal for my eBay Sellers account, and I was saving all the money I made. Therefore, it had to go to this bank to go into the correct savings account.
Related: A Tale of Three Vanguard Funds
Short Term Emergencies
The significant known expenses have older meaner cousins. These are the high unexpected costs. It’s hard to budget for them because you don’t know exactly what, when, or how much it will be. It may be as simple as a flat tire or as complicated as a broken refrigerator (or worse!). I have a particular bank account ready to go with a few thousand dollars for just such short-term emergencies.
Long Term Emergencies
Unfortunately, a few thousand dollars isn’t going to fix everything. That’s not going to help much if I lose my job or if I can’t work for some reason. Enter my long-term emergency fund. I currently have enough money to pay three months of living expenses, but my goal is to have enough to pay for a full year of living.
Travel
We all know I love to travel. So, of course, I have a separate account dedicated to that! I put a little bit of money aside each paycheck to fund my next adventure. I usually have my trips planned out (at least in my head!) months in advance, so I know how much I’ll need.
Japan will run me about five thousand dollars, so I have to put up a little more each month for that. But it’s super fun to see my travel fund grow and know I’m getting closer and closer to that fabulous trip!
FIRE Goals
This is the bank account that I’ll probably get some question marks on from my personal finance friends, but hey, I have to do me. I have one savings account dedicated to all the things I want to do once I quit my job. This includes going back to school, studying Tai Chi in China, buying an RV, and all the other crazy stuff I want to do once I’m job independent.
I need to save up a lot of money for these things, and I know many of my finance friends will tell me that keeping this much cash in a bank account is a terrible idea. I know it’s not going to grow in the bank. But this money isn’t for growing. I have investments for that. This money is earmarked for specific goals, and I don’t want to risk losing it.
Keeping Track of it all
I’m old-fashioned. I keep track of all my bank accounts with pencil and paper. That doesn’t work for most people because they are with the times (unlike me). Personal Capital is a great tool for normal people to track all of their accounts in one place without resorting to my stone-age methods!
What do you have?
So now you all know my dirty little secret. I hoard bank accounts. Is this normal? Does anyone else have more than 2 or 3 bank accounts? Let me know how many you have in the comments!
Melanie launched Partners in Fire in 2017 to document her quest for financial independence with a mix of finance, fun, and solving the world’s problems. She’s self educated in personal finance and passionate about fighting systematic problems that prevent others from achieving their own financial goals. She also loves travel, anthropology, gaming and her cats.
If all those accounts work for you and you’ve actively made an informed decision to keep the cash on hand, then I don’t see an issue! If it works for you, and you’re informed, that’s all that matters.
Just like I think everyone should know there are alternative options to the 9-5 til 65, we need to make sure the FIRE community doesn’t become a list of ‘this is what you should be doing because that’s the correct path’. Learn, be informed and decide for yourself what works for your situation.
Thank you! I agree, I think everyone should follow their own path for what works for them. That may be a 9 to 5 for 40 years or it may be one of thousands of ways of getting to financial independence. I just want people to know they have options.
3 banks here. I got Capital One when it was ING and interest rates were 4.5%. I dealt with the low interest rates, but when the fed started raising rates and their numbers didn’t budge, I checked out Ally. There are capital one branches near me, which is super useful, so I’m not ready to give it up. I also have a savings account for travel, and one for property taxes. My first bank has branches all over, so I’m not ready to give them up yet either. While capital one has no fees on their accounts, my first Bank insists on a minimum balance in checking, savings plus direct deposit. I guess we will see what it takes for me to pare down.
Nice post!
I wish I could find a bank account that pays 4.5%! That would be amazing! I looked into Ally, and they do have the best rates, but not by enough for me to go through the hassle of switching to them haha.
I have a lot of bank accounts but I use them totally differently. I’ve accumulated a few savings accounts and checking accounts from churning bank bonuses, so that’s where most of the fluff comes from:
1 – Checking account #1 – All my transactions go here and it is tied to an online digital envelopes system at mvelopes.com. I only deposit enough money here to meet my weekly and monthly expenses. I do a direct deposit allotment of a fixed amount here and everything else goes to Savings Account #1.
2 – Checking account #2 – Got it for free with my mortgage and received $200 bonus for opening it. It keeps a zero balance but I can transfer money from this account directly to mortgage principle multiple times per month. So, if I want to put any extra money toward mortgage principle, I Zelle it from Checking Account #1 to here and then transfer it to mortgage principle. It applies immediately and affects the amortization schedule within a day.
3 – Savings account #1 – This is where anything not deposited to Checking Account #1 goes. Any raises or bonuses or anything increase the amount that goes here and Checking #1 stays fixed unless I introduce a new expense. This is a combination of Emergency Fund, FU Money, and House Payoff account. I’m carrying a lot of cash here but I’m getting almost 2% interest now which is pretty good. Got a $200 bonus for opening this account. Eventually will use the cash to pay off the house.
4 – Savings account #2 – Not actively using. Got a $200 bonus for opening and haven’t closed.
5 and 6 – Checking Accounts #3 and #4 – Got $250 bonuses for opening these. Have to keep them open until April 2019 per terms.
Kind of crazy!
I really need to look into cash rewards for bank accounts. Apparently I love collecting them, I may as well get something from it!