Multiple savings accounts: The benefits & drawbacks

Savings accounts are a great way to put money aside for upcoming needs, and you may be able to improve your finances by opening more than one. It's possible to maintain multiple accounts with one or more financial institutions at the same time, which might make you wonder how many savings accounts you should have.

For some people, holding one main savings account works perfectly fine. Others find it helpful to divvy up their accounts based on what the money's being saved for and coordinate them with what their timeframe is.

Certain factors can help you land on the "right" number of savings accounts for you. Let's look at how to approach multiple savings accounts, what the benefits and drawbacks of using them are, and how certain accounts can fit certain goals—plus some tips for managing it all.

There's no magic number that everyone should aim for. How many accounts you have at any given time ultimately depends on how you're using them to advance your individual financial goals.

It helps to start by thinking about why you might need a variety of savings accounts. Your financial goals likely have different targets and different timelines. For instance, the mindset of putting aside money to buy a car next year isn't quite the same as socking away money for retirement 40 years down the road.

When you consider giving each kind of goal its own account, you can identify the best account type for each goal.

You may want to start by separating each of your financial goals using the bucket approach. This method places your savings intentions and cash flow needs along a timeline:

• Short-term goals. These are the ones you plan to achieve in the next year or so, such as having enough to splurge on a summer vacation.
• Mid-term goals. In this category are what you want to accomplish in roughly three to seven years, such as making a down payment on a house.
• Long-term goals. The main one here is retirement, but these goals can be anything that requires saving for a decade or more, such as sending your kids to college or making a legacy-defining charitable donation.

Dedicating accounts for each goal or category may keep you inspired to follow through on them as well as easily monitor your progress and know whether you're on track.

If you're going to have different savings accounts for each of your goals, it's important to understand your options and how they work. You then can choose the best type of account for each goal so you get the most value possible.

These are some of the common types of savings accounts people have:

This account type is best for holding money you need to access quickly with little hassle or fees while earning a little bit of interest. You might use one or more of these traditional savings accounts for emergency funds or money you plan to spend in the near future.

High-yield savings accounts typically pay much higher interest rates than standard savings accounts and, therefore, tend to have much higher minimum balances. It won't lock up your money like a CD—you can make withdrawals and transfers within the limits set by the institution—but a high-yield savings account generally won't offer direct spending capability like a money market deposit account. They're designed for parking a large sum of money you may need in the near future.

CDs offer less flexibility but higher interest than regular savings accounts. They mature at a specific time, and if you withdraw your money early, you may have to pay a penalty. A CD is usually best for money you know you likely won't need until the maturity date.

A bit like a hybrid between checking and savings accounts, money market accounts earn competitive interest rates but may come with a checkbook or debit card for you to make purchases. Sometimes they have transaction limits and minimum balances, so they're often best for holding a chunk of money that you want to be able to access easily but plan to do so relatively infrequently.

Retirement accounts can take many forms, and you might hold a few of them at once. You may have a 401(k) or 403(b) with your employer, or a traditional or Roth IRAs that you contribute to on your own. These are for collecting savings you don't intend to tap into until you're done working.

Do you have an
emergency fund?

While you save for long-term goals such as college or
retirement, it's important to also set aside money for
unexpected major expenses—or temporary periods of
income loss.

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Maintaining more than one savings account can have several advantages:

• More interest-earning opportunities. When you have a variety of accounts that work in different ways to meet your needs, you can spread your money in a way that optimizes its growth. As interest rates fluctuate competitively across different products, you may find, for example, that you can take part of your traditional savings and put it into a CD for a few months to take advantage of a good rate. And when that CD matures, maybe you don't need the money for anything yet, so you snag a high-yield savings account offer.

• Goal prioritization. Segmenting your goals and supporting them with dedicated accounts can make it easier to prioritize them. As you're budgeting, you can organize which accounts you want to put more or less into. Multiple savings accounts also can help prevent a setback in one area from affecting all of your goals. For instance, having an adequate emergency fund to cover a new set of tires can keep you from dipping into the savings you've set aside for buying a house.

• Progress tracking and automation. Instead of having a general savings balance, you can see how close you are to achieving each goal when you have different accounts. This can be psychologically rewarding and help you stick to your plans. Plus, many financial institutions have budgeting and savings tools that can help you monitor your progress or even automate it.

• Potential bonuses and incentives. Some financial institutions offer cash bonuses or special incentives for opening accounts or maintaining a certain minimum balance. You may be able to maximize your benefits by opening multiple accounts.

• Backed by deposit insurance. Savings accounts held at FDIC-member institutions have the benefit of federal government protection against loss due to the bank or credit union's failure. Your money is insured up to $250,000 per person, per ownership category, per institution.

Having several savings accounts isn't a strategy that works for everyone. These are some of the potential downsides:

• Feeling overwhelmed. You may find that having multiple accounts feels like too much legwork (or brainwork) to maintain. The more accounts you have, the harder it may be to keep tabs on all of them—and the more frustrating it can be to try to subdivide your money across them. You might prefer a more streamlined approach with only one or a few accounts.

• Potential for extra costs. Savings accounts can have a variety of fees, from monthly maintenance fees to excess or early withdrawal fees to dormant account fees. These charges can add up if you aren't carefully watching all of your accounts.

• Maintaining minimum balances. Holding multiple accounts that each require you to have a certain amount of money in them to avoid fees can leave you feeling like you can't take out any money for fear of dipping below the required balance. You may find that rather than splitting hairs among several accounts, you're better off having large bundles in just a couple of accounts.

• Lower interest yield. Financial institutions usually only offer their highest interest rates on accounts with large balances. Spreading your money around may keep you from reaching those amounts and landing better rates.

Organization and monitoring are the keys to savings management. Staying on top of all your accounts can help you benefit from this strategy.

Set a schedule for checking each account to review whether the balance is appropriate for each goal and timeline. If you find that one account is either outpacing or lagging behind, consider moving money between accounts to maintain your desired mix. This is most likely to happen when life circumstances cause you to change priorities or alter your goals.

To stay organized, you may want to consider using an app or online banking feature to link all of your accounts so your data is in one place. Automating your monthly deposits also can help you avoid missing any.

Placing your savings among different accounts can help you reach your goals, track your progress and reduce your risk. You have several options to explore which combination of rates and features might help you make the most of your money. You can work with the Thrivent Credit Union to go through the offerings and match them to your short- and long-term savings needs.