How many bank accounts one should maintain?

How Many Bank Accounts Should You Have? Balancing Simplicity with Financial Needs

With technology making it easier than ever to open multiple bank accounts, it’s tempting to sign up for new promotions and offers from different financial institutions. However, having too many bank accounts can become difficult to manage over time. While most people only need two accounts— a checking account for everyday expenses and a savings account for long-term goals—others may benefit from having more. Here’s how to determine the right number of accounts for your needs.

Factors to Consider

1. Budgeting If you find budgeting challenging, multiple accounts can help you divide your finances into specific categories. For instance, you might want separate accounts for bills, savings, and discretionary spending. This method can help you avoid overspending and ensure that you meet your financial obligations.
2. Fees Some banks charge fees for maintaining an account or for certain transactions. Having multiple accounts could allow you to take advantage of promotions or meet minimum balance requirements to avoid fees. However, spreading your money too thin across several accounts could increase your likelihood of incurring fees.
3. Convenience Depending on your financial needs, multiple accounts could increase convenience. You might want a separate account for a small business or freelance income, a joint account with a spouse, or an account with a bank that has more ATM or branch access in your area.

Keeping it Simple

The simpler your financial setup, the easier it is to manage. Too many accounts can make it difficult to keep track of balances, transactions, and fees. You may also be required to maintain minimum balances across accounts, tying up money that could otherwise be used elsewhere. Additionally, dormant accounts can lead to fees or even affect your credit rating in some countries, like Nigeria.

How Many Accounts Do You Really Need?

Ultimately, the number of bank accounts you should have depends on your ability to manage them effectively. Here’s a look at some common setups:

• One Checking and One Savings Account: This is the simplest setup and works well for those who want to keep things easy to manage. The checking account covers everyday expenses, while the savings account is reserved for emergencies or long-term goals.
• Multiple Checking Accounts and One Savings Account: If you have different sources of income, like a freelance business or rental property, separate checking accounts can help you stay organized.
• Multiple Accounts for Different Purposes: Some people prefer to have separate accounts for various financial goals, such as bills, discretionary spending, and savings. This can help with budgeting and tracking.

Do Multiple Accounts Affect Your Credit Score?

The impact of multiple accounts on your credit score varies by country. In the U.S. and many Western countries, checking and savings accounts don’t appear on your credit report and don’t affect your credit score. However, in some countries like Nigeria, dormant or non-performing accounts can negatively impact your credit rating. Keeping too many inactive accounts might suggest a tendency to neglect financial obligations, which could be a red flag for lenders.

Conclusion

The number of bank accounts you need depends on your personal circumstances and financial goals. While keeping things simple can reduce stress and make managing your money easier, having multiple accounts might offer budgeting benefits or help with organization. The key is to balance the number of accounts with your ability to manage them effectively. Periodically reviewing your accounts can help ensure that they continue to meet your needs and support your financial goals.