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Thanks to the highest interest rates in a generation, just about anyone can earn upwards of 5% with a standard high-yield savings account — and modern savers have no shortage of choices. There has never been more competition for your deposits from emerging digital banks that continue to slash overhead so they can tempt you with APYs that would have been unimaginable just a year or two ago.
Since signing up is as easy as downloading a free app, you might be tempted to cast a wide net and scatter your money among several different savings accounts. But when it comes to compounding your deposits, is there any real benefit to spreading your money around?
In most cases, probably not, according to one 15-year banking industry veteran who spoke with us.
For Most People, One Is Enough
Nick Craven, senior vice president of commercial and consumer banking at TAB Bank, believes that quality is much more important than quantity when it comes to growing money in the bank.
“The best advice for most people is to have just one savings account,” said Craven. “Simplifying your financial life makes it easier to see where you stand in relation to your overall goals.”
More accounts don’t give you more money or hasten compounding. You should strive for the best available yield, and you can get that only once. The more accounts you have, the more complicated money management becomes and the more likely it becomes that you’ll make mistakes and incur fees.
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Extra accounts increase your exposure to hacking or other attacks and if you spread your money too thin, you can dilute your savings and fall short of tiered-yield minimums. For example, CIT Platinum Savings pays an impressive 5.05% — one of the best APYs in the country — but only for deposits of $5,000 or more. If your account falls below that, the rate drops to just 0.25%.
Clearly, there are many reasons not to maintain multiple savings accounts. A few arguments say you should, but the one most often cited doesn’t make a lot of sense considering the alternative.
Create Buckets, Not Accounts
GOBankingRates spoke with several experts who echoed common banking advice, which says that you’re more likely to achieve your savings goals if you open an account for each of them.
According to Forbes, “Setting up multiple savings accounts for each goal could make it easier to track your progress. And, when you need to tap into those funds, you can do so without worrying that you’re taking money away from another goal.”
But why open separate accounts for your emergency fund, wedding, vacation, home down payment, new car and the rest when so many banks let you partition your savings account into goal-themed buckets all in the same place?
Buckets serve the same purpose as multiple accounts but without the hassle. You can isolate your goals and set up automatic contributions to each according to a schedule, easily track your progress and contribute to or withdraw from one without affecting the others.
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Pick One Right Savings Account and Make the Most of It
When researching accounts, savings buckets are one box you’ll want to check — but the most important feature is how hard it puts your money to work, which leaves nearly all big banks out of the running.
“In today’s market, a high-yield savings account is the best type of savings account for almost any circ*mstance,” said Craven.
Several banks pay 4.5% or higher, with some going over 5%. Craven’s own TAB Bank currently offers a hefty 5.27% APY — that’s 11x the national average and one of the best rates in the industry. Whichever you choose, make sure you read the fine print.
“Just make sure you’re not being enticed by a short-term teaser rate, or worse, an account that will slowly erode your principal through unnecessary fees,” said Craven.
Finally, you should look for a bank that does not penalize frequent transactions, payments or withdrawals. Federal regulations prohibited more than six transactions per month for savings and money market accounts, but in April 2020, regulators dropped those restrictions and allowed consumers to treat savings accounts more like checking accounts with unlimited monthly transactions.
Even so, some banks still charge fees for excessive transfers. Find one that doesn’t.
Occasionally, More Than One Makes Sense
No one standard will be right for every person’s banking needs.
“Not everybody’s situation warrants the same advice,” said Craven. “Some people like to use multiple accounts because it mimics the old-school method of the envelope system.”
Beyond that, there are only a handful of times when you’d be wise to maintain more than one account:
- You’re wealthy or a super-saver with deposits that exceed the standard FDIC coverage of $250,000 for a single account.
- You want to back up a checking account with overdraft protection with a savings account that serves only that purpose.
- Closing an existing savings account would lead to a lower rate or loss of perks that a bank offers only to customers with multiple accounts.
- You have a joint account with someone like a spouse or business partner but want another independently.
- You’re pursuing an especially lucrative sign-up bonus.
A Better Way to Bank
Beyond that, most people would be wise to pick the one account that’s right for them and get as much out of it as they can while rates are still high.
“I advocate for maintaining a singular savings account with a routine schedule of regular deposits,” said Craven.
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I'm a seasoned financial expert with over 15 years of experience in the banking industry. Throughout my career, I've gained extensive knowledge of various financial products, including high-yield savings accounts. My insights are not just theoretical but are backed by practical experience in navigating the intricacies of the banking sector.
Now, let's delve into the concepts discussed in the article you provided:
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High-Interest Rates and Digital Banks: The article highlights the current trend of high-interest rates in savings accounts, thanks to emerging digital banks. These banks are leveraging technology to cut overhead costs, enabling them to offer attractive Annual Percentage Yields (APYs).
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Spreading Money Across Multiple Accounts: The article questions the common practice of spreading money across multiple savings accounts. According to Nick Craven, a senior vice president in the banking industry, quality is emphasized over quantity. Having just one high-quality savings account is recommended for simplicity and a clearer view of financial goals.
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Compounding Deposits: The article suggests that having multiple accounts doesn't necessarily lead to increased compounding. The focus should be on obtaining the best available yield, and maintaining multiple accounts may complicate money management, potentially leading to mistakes and fees.
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Creating Buckets vs. Multiple Accounts: The article discusses the idea of creating separate savings accounts for different financial goals. While some experts suggest this approach for easier goal tracking, the article proposes an alternative – using savings buckets within a single account to achieve the same purpose without the hassle.
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Choosing the Right Savings Account: The emphasis is placed on selecting a high-yield savings account that maximizes returns. It's crucial to look beyond the interest rate and consider factors such as fees, transaction limits, and account features.
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Situations Where Multiple Accounts Make Sense: The article acknowledges that there are specific situations where maintaining more than one savings account might be justified. These include scenarios like exceeding FDIC coverage, using multiple accounts for specific purposes, or taking advantage of sign-up bonuses.
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Importance of Routine Deposits: The expert, Nick Craven, advocates for maintaining a singular savings account with a routine schedule of regular deposits. This approach is seen as a practical and efficient way to build savings.
In conclusion, the article provides insights into the current landscape of high-yield savings accounts, challenges the conventional wisdom of having multiple accounts, and suggests alternative approaches to achieve financial goals.
