Our rendezvous with banks begin with our first game of Monopoly as a child and never really ends. Modern-day banking has is at the core of all economic activities today, but the essence of modern banking has been around since the 14th century. Today, the banking industry has developed to become the most significant stakeholder in wealth management.
In order to derive the maximum benefits from the banking system, you must be well-versed with the basics. One of the most important aspects of the same is how many bank accounts should an individual own? While there is no unequivocal answer to this question, there are different approaches to finding the optimum number of bank accounts you require. Before going any further, let’s figure out the various types of bank accounts, their distinct features, and how they can solve your money matters.
What are the Different Types of Bank Accounts?
Owing to the changing expectations, preferences, desires, and investment trends, banks have started to offer different kinds of bank accounts. Here is your chance to take a look at different bank account types and figure out their distinct features:
- Current Account
A current account is an indispensable part of every limited organisation, educational institution and more such associations, as it does not put any cap to the minimum or the maximum number of transactions. The main objective of a current account is to enable smooth business transactions by helping business accept and make payments. Current accounts do not have any fixed maturity and usually do not have frills or special features. Current accounts do not offer any interest on the deposits made.
- Savings Account
A savings account, as the name suggests, helps you save and grow your money. A savings account allows a limited number of transactions but offers interest rates. You have to maintain a minimum balance and are not allowed to overdraw from a savings account. This type of account lets you put your cash away from your daily needs, enabling you to save money to achieve big and small financial goals.
- Recurring Deposit (RD) Account
Any individual, couple, group or organisation can open an RD account and make periodic (monthly or quarterly) payments of a minimum set amount, which earn a higher interest than normal savings accounts. The account can be opened for any period, ranging from a few months to several years. The account holder receives the final sum one month after the last instalment is made. This account type is apt if you wish to create a fund for a particular goal, say to fund your child’s education, buy your dream car or gift your mother jewellery.
- Fixed Deposit (FD) Account
A fixed deposit or FD account accepts deposits from customers – varying from a few days to several years. The money deposited in this account cannot be withdrawn before the maturity of the account. However, in case of need, the depositor can ask for closing the fixed deposit prematurely by paying a small penalty fees. Banks usually offer the highest rate of interest on FDs to attract customers and encourage them to deposit their money.
What are the Pros and Cons of Having Multiple Bank Accounts?
Holding and maintaining multiple bank accounts comes with its own set of advantages and disadvantages. How you handle your bank accounts depends mainly on your financial personality and financial habits. Here are a few things you must keep in mind before opening multiple accounts:
- Fulfilment of multiple financial goals
Multiple bank accounts can help you save and keep track of your money. You can keep separate bank accounts for different saving purposes, deposit a set amount each month, and valuable benefits in the long run. For example, you can keep one bank account for your everyday transactions and one to save for your wedding. Similarly, you can also create an emergency fund, which you can use in medical or other emergencies. Multiple accounts can be used to fulfil various short- and long-term objectives as well.
- Keep you interested
The math is simple: the more money you keep in your bank account(s), the more interest you receive by the end of the year. So, whether you have savings, recurring deposit or fixed deposit account – or all of them – you can earn a lot of interest on your money while managing your wealth. This will prove to be beneficial if you own a lot of money and choose to open investment accounts, as you can maximise the interest earned through a variety of accounts.
- Perks and benefits
Banking has become a highly competitive sector, and thus, every bank tries to offer a better deal than their competitors. Apart from the usual benefits, such as ATM services and internet banking, keeping multiple accounts can help you get credit, discounts, reward points and other perks for each one of your accounts. You should also check with your bank to know about the schemes and benefits you are eligible for.
- To make higher withdrawals
Most banks allow withdrawal for only a fixed amount of money or a pre-set number of withdrawals per month. So, say if on one account, you can make a maximum of five free withdrawals per month on an ATM; with two accounts, you can get 10 free transactions. That being said, ensure the money you withdraw is spent wisely.
- Failure to reach the minimum balance requirement
Most banks require you to maintain a minimum amount of sum in your account, be it savings or current. In case you have limited money and end up opening multiple accounts, you might not to maintain this amount, leading to an accumulation of penalty charges. Thus, whatever money you might get as interest might go back to the bank as penalties.
- Difficult banking relationships
You need to show financial responsibility and loyalty to a bank in order to become eligible for loans and credits. While maintaining multiple accounts with one bank will bring you a better interest rate, opening various accounts with multiple banks might lower your credibility. If you plan to take a loan or credit card in the future, maintain your bank accounts well, regardless of the number of accounts your own.
- You would pay higher fees
Banks charge a fixed payment for its services, such as withdrawals, lockers, cheque books, overdraft fees, credit card fees, etc. If you maintain multiple accounts, you pay for the same set of services several times over. As a result, you end up paying fees for these services, even without knowing it. This divides your money and eats into your savings. If you intend to maintain multiple accounts, ensure that you’re paying the minimum possible fee on each account.
How Many Bank Accounts Should You Have?
Now that you are well-versed with the types of bank accounts that are on offer and the pros and cons of having multiple accounts let’s get to the big question. If you are wondering how many bank accounts should you have and how to select them, here is your guide:
- For minimum banking needs
If you are a finance minimalist, you can maintain just one account and still manage all your financial needs. Having just one account for both spending and saving is best suited for individuals who have a single source of income. All you have to do is keep track of your transactions through net banking without any further effort on your end.
- The optimum combo
If you happen to be running a business, having a current account is indispensable to run your business. However, you should also have a personal account to pay yourself salary and manage personal expenses as well. Most businessmen have both these accounts to help them manage their personal and business expenditures seamlessly.
- Multiple accounts for multiple needs
Having multiple types of bank accounts in multiple banks can benefit an individual too. For example, if you have multiple spending and saving needs, you can open different accounts for them. Thus, keeping a separate RD account to save for your sister’s wedding and FD for your wedding and a savings account to pay your monthly EMIs is a good idea. By opening accounts in different banks, you can maximise your benefit by getting the best possible interest rates.
- Emergency funds
Car repairs, home renovation, and medical bills – you might have to pay for these charges anytime, but you can do so without tampering with your savings. To do so, you can set up an account for the sole purpose of building an emergency fund. You may start with the minimum balance in the account and add whatever money you save over the years, while also earning a reasonable rate of interest to build a sufficient fund.
- Unique transaction needs
How many accounts you should have eventually depends on your income and spending habits as well. In case you have a lot of income to spare or received an accumulated sum, you can set separate FD accounts for them and gain interest over time. Similarly, if you operate a business, you will require different bank accounts for your personal and professional needs. You should visit the bank where you already have accounts to know more about how you can best use the different financial management tools and instruments available.
Other Things to Keep in Mind While Opening Multiple Accounts
As mentioned earlier, how many bank accounts you open and operate depends mainly on your income, spending habits, and the nature of your work. However, should you plan to open multiple bank accounts, here are some more things to be aware of:
- Every account will cost a fee
Each and every bank account that you open comes with its own maintenance charges, low-balance charges, internet banking charges, and SMS alert charges. In most cases, these are monthly or quarterly fees that get deducted from your bank account. Although the charges levied by banks on their accounts are nominal, they accrue up to create a big sum over the years, particularly if you are maintaining multiple accounts. In the long run, it might pinch you, especially if any of your accounts or the services were inactive.
- Rewards will multiply
In order for customers to open new accounts, most banks offer lucrative deals. Apart from account bonuses and reward points, you may get various free coupons for movies, dining, shopping, access to exclusive airport lounges, discounts on airline tickets, etc. So, each time you sign up for a new account, you qualify to avail these benefits all over again, saving money and getting great deals.
- Ineffective use of cash
If you deposit all of your savings and income in one, or several bank accounts, the returns you will get over the long run won’t be substantial as inflation keep increasing periodically as well. It might be best to invest your capital in a variety of financial tools and instruments and diversify your portfolio, instead of keeping all your eggs in one basket.
- Keeping track of all your accounts
The more bank accounts you have, the harder it becomes to keep a record of every transaction made, every penny spent or even of fraudulent activities. If you keep big sums in your accounts but lose track, your account could become a victim of online identity theft, causing you a significant financial loss. So, make sure you keep an eye on your finances if you have several bank accounts.
Before opening multiple bank accounts, you must sit down and assess your financial abilities to manage all the accounts simultaneously. If you are a businessman, you might have to discuss your strategies with your partner. On the personal front, you might have to engage and re-plan your budget with your spouse. In other words, keeping only one bank account or opening several of them – both the options are right, but only if the account holder knows how to maintain them efficiently without losing any chance of making more money.
To conclude, it’d be wise to say that the number of bank accounts and individual requires may change as per the sources of income and how long-term goals shift. The number of bank accounts you own must evolve as you diversify your money based on your financial and personal goals.
Regardless of the number of accounts you own, the key is to keep track of transactions and monitor every activity regularly. To keep your accounts safe, practice safe online banking by changing your passwords frequently and do not log in using public networks. In the end, ensure that each account is serving the purpose it was designed for and that your money is available when you need it.
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