This is a burning question every individual in their financial journey will have at some point in time – is opening bank accounts in multiple banks a wise thing to do? Let’s be honest, it’s easy to open bank accounts in different banks because of the tempting offers each one provides. But there is no absolute answer to this question – opening a bank account and having multiple accounts is a personal choice and depends on an individual’s finances. So it’s better to look at the advantages and disadvantages of having multiple bank accounts so you can have an overview of both sides.
Understand the Purpose Of Having Multiple Bank Accounts
Bank accounts are like financial tools. Each tool is assigned a specific job. For example, you will need a checking account to pay your utility bills and withdraw cash to spend on other expenditures. You will probably need another account where you just deposit your savings and maybe use those savings amounts for investment.
If you are running a business, you will need a separate account for the business transactions. Note that no matter how small your business may be, for tax-paying purposes, you cannot mix business transactions and check transactions through the same account.
For example, if you want to earn interest on the money you save/deposit, you will need to open a Certificate of Deposit (CD)/Fixed Deposit/Recurring Deposit account.
If you have a spouse, it is recommended to have checking accounts separately for each one so that the balances and transactions can be tracked and analyzed easily. Many retirement accounts ask to have individual owners only.
Takeaway – Therefore, if you have varied reasons for bank accounts, it might be inevitable to have multiple bank accounts. Jot down the purposes for which you need bank accounts, that must give you an overall count of accounts you need to create (maybe not at the same time!).
Benefits Of Having Multiple Bank Accounts
- Track Different Types of Transactions
As mentioned above, you can broadly categorize different types of transactions and have an account for each type. For example, a checking account for everyday transactions, savings account for savings, and a deposit account for earning interest through lump-sum deposits. Some of the transactions may be achieved through single accounts, but it just becomes easier having multiple accounts.
- Dependency on a Single Bank is Reduced
There may be times that your bank may be experiencing downtime, or there may not be ATMs of that bank in access nearby. So if you have multiple bank accounts, you can always transact the amount using one account if you have problems accessing the other. This will ensure that the downtime or issues with the bank do not stall or stop your work.
- Create a Habit of Savings
This is especially significant if you want to have multiple savings accounts. Having just one savings account where you deposit all your savings, might tempt you to misspend it. On the other hand, you can set up automatic transfers from your checking account to your savings account so that the balance on each one of them grows. Many times, the banking website/mobile application will have an inbuilt feature to automate transactions.
- Use Multiple Bank Bonuses
Banks use a lot of exciting bonuses to draw customers. This can happen through bonuses in accounts, or credit/debit cards that the bank issues. In some banks, you might be eligible for a bonus if you maintain a minimum balance in your savings accounts for some time. These bonuses can be more than hundreds of dollars, so it makes sense to make use of them. Not just that, if you have debit/credit cards that provide rewards for a specific purpose of spending, having them can help you make your spending more efficient. These bonuses can only help you accelerate your savings.
- Optimize For High ATM Usage
ATMs are a fundamental way of withdrawing cash from your bank. Most of the banks have a limit of free withdrawals per month. If you regularly withdraw money from your account, having multiple accounts will help to save on the ATM fees. But take note of the fees of withdrawing from different ATMs, before you open an account with a bank.
Disadvantages of Having Multiple Bank Accounts
- Maintaining Minimum Balance in Each Account
Most of the bank accounts require you to maintain a minimum balance in your account. If you do not do it, you may even be penalized by the bank through extra fees. Having multiple bank accounts can be a headache as you have to maintain the minimum balance in each one, and depending on the type of account and the bank, it might even vary with each.
- Remembering Credentials Can Be A Headache
Every bank account will have a secret pin, net banking user credentials, security codes, etc. Remembering them together might be harder, jotting them down somewhere can be risky. Moreover, if you forget any of the vital information, it is usually a hassle to retrieve them due to security concerns. Having fewer bank accounts cuts this headache.
- Debit/Credit Card Charges May Add Up
Every bank that issues a credit or a debit card may have a charge associated with it that is taken as the annual fee. If you have multiple bank accounts, you might have to pay fees for multiple cards which may add up to a significant amount. If the debit or credit cards are of the higher end, then the charges maybe even more.
- Regular Usage Else Accounts May Turn Inactive
If you have multiple bank accounts, you will need to ensure that you use all of them. Keeping an account stagnant (without any to and fro transactions) for a specific period may cause it to be marked as inactive or dormant. This can stop all the services related to your account, and you may even need to pay a penalty to the bank. Also, retrieving your account bank can be a hassle as well. Dormant accounts are also risky as criminals usually rely on them to execute illegal transactions.
Key Takeaway – Is Having Multiple Bank Accounts A Good Idea?
There is no absolute number. But the rule of thumb is, avoid having unnecessary accounts and use one account for a specific class of transactions (savings, checking, business, etc). But if you are capable of handling multiple accounts at once and their complexity, you can go for it and use them to optimize ATM charges, bonuses, etc. There are specific applications available that can help you check the balances and do basic functions with your accounts from one place. Check out them but make sure they are legit before operating them.
Also Read: Top 10 International Banks in India
Frequently Asked Questions
How many bank accounts can I have?
There are usually no limits. However, check with your local authorities and your bank.
How to open a bank account?
There are usually basic documents asked. These include and not limited to personal identity proofs, address proofs and other supporting income proofs (if necessary).
Is having a bank account useful?
Yes, it is almost mandatory for anyone to have a bank account. It helps you store money at a secured place and undertake multiple transactions online.
Is it possible to maintain zero balance in bank accounts?
Yes, many banks have special zero-balance accounts. Here, you do not have to maintain a minimum balance.
What are the steps to close the account?
You can do it online through netbanking or by visiting the bank. It is recommended to close the account if you are not using it.