Having multiple savings accounts allows you to separate your savings for different goals and purposes instead of having everything in one large lump sum. Imagine raiding your emergency savings for those big purchases, when you know you shouldn’t be touching it in the first place. By having multiple savings accounts, it puts you ahead of the game with targeted goals and creates good saving habits.
Before starting up multiple savings accounts it’s important for you to have a strong financial foundation. This means if you have tons of credit card debt, your focus should be on paying off that card aggressively.
1. If you have a 15% high-interest rate card with a balance of $1,000. Keeping that daily balance for 12 months would cost you an extra $150.00.
2. Most credit cards have compounding interest—meaning the interest gets added to your balance, and then you pay interest on that interest—you end up paying them more than $160.00 for that year.
Not to say you can’t save and pay off your debt because you can certainly do both, but it makes more sense for you to get rid of your debt as soon as possible. What’s the point of saving if your credit card interest/payment a month is more than you can contribute to your savings account in a month? Moral of the story, pay it off so you can contribute more towards your savings and invest in yourself.
Here are 3 specific reasons you should have multiple savings accounts.
1. TRACK YOUR SAVINGS GOALS
Each of your savings accounts should have a specific goal in mind. For example, you can have an emergency account, a travel account, and a homeowner’s account. It depends on what your goals are. By separating your accounts it allows you to see how on-track are you to meet your specified goals. My recommendation is to have your savings accounts with one institution. Banks such as Ally and Capital One 360 allow you to do this easily. These banks are online savings accounts that provide you with a higher annual percentage interest rate (1%) compared to traditional savings accounts (0.01%).
2. PRIORITIZE YOUR GOALS
You can absolutely meet some of your savings goals faster than others. Your savings account allows you to prioritize, which of your targeted goals you would like to tackle first. The key is to set an amount and break it up by the amount you can afford to contribute. Then contribute by either signing up for an automatic savings account or putting it into the account yourself every month.
3. BUILD HEALTHIER SAVINGS HABITS
As I said earlier, having multiple savings accounts puts you at an advantage because you are creating better saving habits. It actually puts you in check and pushes you to be disciplined. While your goals are transparent in your mind it also reminds you that while you do have to pay your bills every month, it’s also important to pay and invest in yourself first.
Having a good financial foundation also means having a budget. Even while creating your savings goals you must be aware of your monthly expenses. You should know how much you bring and how much you put out.