Everybody wants to save, and sometimes getting to a point where you can really save can make you feel so good. It could be a sign that you are getting a hold of your finances. But when you think about saving, what comes to mind? Perhaps a single savings account where you stash away some money for emergencies. But can one savings account take care of all your savings needs? What if you have other needs apart from an emergency fund account, should one account be used for every savings? You may ask. Could having more than one savings account make a difference in how you manage your money?

Many Canadians have multiple goals, all at the same time. You might be saving for an emergency, a vacation, or to further your education or upgrade your skills. With all these different needs, managing your finances in just one pot might not be the best strategy. But how many savings accounts is enough? Let’s find out.

Benefits of Multiple Savings Accounts

Easy Budgeting

Having multiple savings accounts is not a bad idea, budgeting can become easier to handle. One account could be for your monthly rent, another one for vacation savings, another one for that special stuff you want to buy, and another for emergency funds. This will make it easy to allocate specific amounts to each goal or account right when you receive your income. It becomes easy to know how much you have available for each purpose without the risk of overspending from a single pool of funds. This will prevent you from using money intended for bills on something else you never planned for.

It Encourages Saving Discipline

When you try it, you can agree that having a few savings accounts can boost your saving discipline. How does this work? When you designate accounts for specific goals, it becomes psychologically harder to withdraw money from them for unrelated expenses. It will feel like a betrayal when you withdraw such money for something else. For example, taking out money from your vacation fund to buy a new laptop might make you think twice if that money is set aside for a different purpose. You will rather save towards it than forfeit a purpose that has already been defined. This will encourage you to respect your financial boundaries and priorities. Over time, this discipline in saving can lead to more substantial financial security, as you’re less likely to derail your saving efforts for spontaneous spending.

Maximises Interest Rates

When you spread your savings across multiple accounts, you can take advantage of interest rates offered by the banks you use in saving. Some accounts could offer high interest rates for larger balances or for leaving your money untouched for a long period. This will help in growing your money while you make the most out of the available financial services. 

What You Should Know Before Opening Multiple Accounts

Bank Fees

Before you open multiple savings accounts, you should know some things. Remember nothing is free even in Freetown. Some banks charge monthly fees for account maintenance, especially if your balance falls below a certain threshold. These fees can eat into your savings, and could offset any interest you earn. It’s important to read the fine print and understand the fee structure of each account before you open them. Look for accounts with no monthly fees or where fees can be waived by maintaining a minimum balance.

Keeping Track

You don’t just open an account and assume that everything will take care of itself. There’s a way you may be carried away or overwhelmed with managing multiple accounts. What if you were charged for a fee you can’t explain, what if a fraudulent practice occurs in one or two of your accounts? You may never know unless you keep track of things. Get your bank statements every once in a while and be sure everything is intact.

Financial Goals

The number of savings accounts you open should relate to your financial goals. More accounts do not necessarily mean better financial management if they don’t serve a specific purpose. Evaluate what you’re saving for and decide if separating your funds will help you achieve your goals more effectively. For example, having a separate account for an emergency fund, a down payment on a house, and holiday spending might make sense. But creating multiple accounts for similar goals may complicate your finances. Align each account with a clear, distinct goal to ensure that each one adds value to your financial strategy.

Ideal Number of Savings Accounts You May Open 

Emergency Fund

Everyone should have an emergency fund. This should be one of your primary savings accounts. This fund should be easily accessible in case of sudden need like unemployment, medical emergencies, or anything else that needs urgent financial intervention. Keeping this money in a separate savings account prevents you from tapping into it for everyday expenses. This clear separation helps ensure that you’re covered in a financial pinch without disrupting your other financial goals. Having an emergency fund will reduce your chances of getting into credit card debts or other forms of debt.

Short-Term Savings

For goals that you expect to reach within a few months, a year, or two, you can consider opening a short-term savings account for them. It could be for expenses like holiday gifts, vacation, new gadgets, etc. This separation allows you to track progress toward these goals without mixing funds allocated for long-term plans. Having a specific account for short-term savings helps you avoid the temptation to use these funds for other purposes.

Long-Term Savings

Long-term savings accounts are for goals more than a few years away, like saving for a down payment on a home, a child’s education, or your retirement. These accounts often benefit from being held in higher interest or investment accounts since the longer time frame allows your money to grow through compound interest. Depending on your goals, you might consider high-yield savings accounts, or even investment accounts specifically designed for retirement or education savings. Keeping long-term savings separate helps you commit to these future needs without risking these funds for immediate desires.

Conclusion

You can have as many savings accounts as possible as long as the purpose is justified and clear. Having three savings accounts is ideal and can serve the purpose to which you intended. If you have credit card debts that are eating away your peace of mind. You should seek help. Your debt can be reduced by up to 80%, and interest will stop immediately. Call us at (416) 900-2324 to schedule a free consultation with us. Being debt-free feels good!