by Kailey Hagen | Updated July 17, 2021 - First published on July 2, 2021
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Struggling to choose between two savings accounts? Why not pick both?
So you've got some extra cash and you need a place to stash it that's a little safer than under your bed. A savings account is the go-to option for most people, but it's not always easy to find one that can suit all your needs. If any of the reasons below appeal to you, you might be better off opening multiple savings accounts instead.
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This is one of the main reasons I have multiple savings accounts. As a freelancer, I have to pay estimated taxes throughout the year, so I keep my tax money in a separate savings account so I don't accidentally spend it.
You could use a similar approach if you're saving for multiple financial goals. One savings account could hold money for a car, another for a down payment on a house, and another for your emergency fund. Or if you have some joint financial goals with your spouse, you could have one savings account for family plans and one for personal goals.
If you'd rather not open a bunch of savings accounts to keep your money separate, you could look for a budgeting app. This could help you set up a digital envelope system instead. Or you could just keep careful track of how much money to set aside for each goal.
For those with ample savings, multiple savings accounts are often essential for keeping your money secure. The Federal Deposit Insurance Corporation (FDIC) only insures savings accounts up to $250,000. So if you have more than $250,000 in savings, you'll need to keep your funds at multiple banks to fully protect your money against bank failure.
Of course, if you have that much extra cash, it may not be advisable to keep it in a savings account at all. If you don't think you'll need it in the next five to seven years, consider investing your money instead. While there's some risk involved with this, you could earn a much greater return through investing than you could by leaving your money in a savings account.
If you do think you'll need your funds in the next few years, a savings account is a better option. The stock market can be volatile in the short term, and if you need to pull your money out at a certain time, you may have to take a loss. So it's best to keep money for short- to medium-term financial goals in a savings account. Same goes for your emergency fund.
The annual percentage yield (APY) on a savings account can vary from bank to bank. Online-only banks offer much higher rates than their brick-and-mortar cousins do, but even among this group, there's a lot of variety in terms of available rates, and they change over time.
Opening savings accounts at multiple banks gives you the freedom to move your money around to wherever it can earn the most interest. If one savings account drops its APY, you can move your funds out of it and into a different account with a higher rate until the first one's APY comes back up again.
One thing to keep in mind is that some savings accounts require you to maintain a certain balance to earn the highest APY or to keep your account open. This could be problematic if you don't have a ton of savings. Look into any balance requirements associated with the account you're considering before you open it.
There's nothing wrong with sticking to a single savings account if none of the reasons above apply to you. A single savings account allows you to easily manage all your money in one place. And you can still earn a high APY if you choose a high-yield savings account. It's all about what works best for your lifestyle.
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's picks of the best online savings accounts can earn you more than 8x the national average savings account rate.
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