How Many Bank Accounts Should You Have?
Well, in order to figure out how many bank accounts should you have, we’ll need to take a step back and define what is a bank account first!
What is a bank account?
A bank account represents a relationship between an individual/organization with a financial institution, typically a bank. The individual or organization holding the bank account is known as the account holder.
This relationship starts with the account holder depositing money into the bank account. In return for holding your money, the financial institution offers various services, including accepting deposits, making payments, access to credit, and more. The account holder can then use the funds in these accounts to manage money, save, invest, make payments, and make purchases. The money held within the accounts can be accessed through withdrawals. These withdrawals can be in the form of cash, checks, or electronic transfers.
Most financial institutions are often insured by government agencies (Federal Deposit Insurance Corporation – FDIC), offering protection for the account holder in the event a bank ends up failing.
This post is about how many bank accounts should you have.
Let’s dive into the bank accounts should you have:
1. Checking Account
This account is intended for making transactions, whether that’s for purchases, bill payments, or moving money. Checking accounts can typically be used for making rent, mortgage, credit card payments, used for investing, and more.
2. Traditional Savings Account
This account is intended for saving. For this reason, savings accounts are typically limited by 6 withdrawals per month. Since the purpose is to save, financial institutions may offer bonuses like earning interest on deposits.
3. High Yield Savings Account
This account is a savings account with high yield interest benefits. Similar to a traditional savings account, but the interest rate is typically much higher. Depending on which financial institution you opt to open a HYSA with, the rate varies. The reason the interest rate is higher is because the financial institution uses the funds deposited to invest in other higher-yielding investments. HYSAs are typically FDIC insured, but again, do your own research when opening a HYSA. Check this post out for the best high yield savings accounts. Since these accounts offer much higher interest rates, it’s common for HYSAs to have certain limitations or requirements in order to maintain and earn the higher interest rate.
You can also utilize high yield savings accounts for certain goals you may have: buying a car, down payment for a house, sinking funds, etc.
4. Retirement Accounts
5. Bridge Investment Account
This account term isn’t commonly used, but the idea is that if you plan on retiring before 59.5, you’ll find this account useful. 59.5 is the age you are allowed to withdraw from a 401k or Roth IRA without penalties. However, if you retire before that age, you may need an account that will bridge the gap between the age of your true retirement and the age in which you’re allowed to withdraw without penalties.
To recap, how many bank accounts should you have ultimately depends on your financial situation and goals. However, to reiterate, the 5 accounts covered are here:
- Checking Account
- Traditional Savings Account
- High Yield Savings Account
- Retirement Accounts
- Bridge Investment Account
There you have it! Interested in learning more about how many bank accounts should you have? Check this post out for the best high yield savings accounts.
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