What's wrong with opening multiple savings accounts?
The first step in developing a savings plan is to identify your goals and figure out how you will meet them. While the lucky few among us begin our adult life with a substantial savings account courtesy of years of relatives' gifts and maybe some money earned at a part-time job, most people start out with next to nothing in their bank account.
Getting started with savings
Before you can start splitting your savings into multiple high interest savings accounts, you need to set up a system of paying yourself first. Assuming you have a regular paycheck, the easiest way to start saving is to open just two accounts -- a checking account linked to a high yield savings account. Have your paychecks automatically deposited into the checking account. Then have the bank automatically transfer a certain amount of each paycheck into your savings account.
In order to choose the right account to meet your needs, compare savings accounts online. Some high-interest accounts charge fees or have limited withdrawals or a high minimum balance requirement.
Your first savings account should be geared toward building emergency savings so you don't have to fall back on credit cards when unexpected bills come up.
As soon as you have started depositing money in a high interest savings account, start thinking about your other goals and designate different accounts for those goals.
Developing a savings plan
Your emergency fund should be held for truly unexpected needs such as a broken window or a broken ankle. Once that fund is in place, you can improve your cash flow by setting aside money for more occasional expenses -- those expenses that you know will come up every year (like holiday shopping) or a few times a year (like self-employment taxes).
One way you can be better prepared for those larger expenses is to spread the cost throughout the year. Set aside money every month for those expenses in a high yield savings account. That way you are earning interest on the funds and the money will be available when you need it.
The next step is to set priorities for savings that you can use to reach other goals, such as paying for a vacation or making a down payment on a home.
Choosing a savings account
Once you have decided on your savings goals, do an online search to choose the right bank account for each goal. Consider how accessible your funds should be. For instance, if you want to be able to access money in an emergency, do you really want ATM access to those funds for a shopping spree?
For savings that are being used for a particular goal, such as a spring break vacation, consider a certificate of deposit with a maturity date a month or so before your trip. Many banks have flexible CD terms, so you can get one that expires just when you need it.
A money market account is another option, although most have a minimum balance requirement of $2,500. If you want to open multiple savings accounts in one location, many online banks allow you to divide your savings into multiple targeted accounts, each with a nickname of your choosing.
How many savings accounts do you need?
Choosing how many savings accounts to have is a completely individual decision. The main thing is saving rather than spending, so do whatever helps you achieve that goal without costing you in fees, inconveniences or minimum balance requirements. If you're comfortable with keeping a detailed budget and using it to track savings goals, you might be just fine with one account. Or you might find that an account for each individual goal gives you a better sense of control and a clearer vision of what it takes to reach each savings target.
How many savings accounts do you have? How many is too many?