How Many Bank Accounts Should I Have and Exactly Why?

November 3, 2022

If you want to know how many bank accounts you should have, this article will answer that and much more.

Yes, you will learn exactly how many bank accounts to have, why and answers to other relevant related questions.

We have most likely, heard the joke about the individual who was writing checks off of a banking account that was opened for him locally.

As the story goes, he kept writing checks and kept receiving notices from the bank that he was overdrawn. To which he humorously replied but I’ve got enough checks.

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Having a bank account is a privilege. It is one that should not be taken lightly.

In fact, there are many financial gurus who indicate that not only should a person have a bank account but they should have a number of bank accounts that serve different financial functions.

Let us proceed on understanding this rationale of having multiple bank accounts and then talk about frequently asked questions regarding various checking, savings, and other bank accounts.

Importance of Bank Accounts

Bank accounts are very important for both the finances of a business and one’s own personal financial dealings.

First of all, they are a secure account held by a financial institution in which the depositor can safely place their money.

A bank account will help you to receive deposits both physically and electronically as well as being able to write checks or use electronic bill pay.

A banking account is a widely accepted way of keeping one’s money safe and secure. This is due to the fact that it is better than having cash stuffed underneath the mattress or placed in a secret place within the home.

Also, money that is deposited into a financial institution’s safekeeping is generally insured through the FDIC system.

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Secondly, a bank account is an optimum way for an individual to not only deposit their money but also to spend their money.

The spending of an individual’s money from their bank account can be done either through the writing of a physical check from their checking account or can be set up electronically using a bank’s service of electronically transferring funds to a service provider.

If an entity wishes to pay you electronically, having a bank account is a very convenient method for you to receive your money in this manner.

Thirdly, the reverse is true in that a checking account can receive a deposit into your account a physical check or cash that you may have received.

In addition, many employers, retirement fundholders, and the Social Security system use direct deposit.

This simply means that they do an electronic transfer of funds from your account or payment on your account and electronically transfer the money into your savings or checking account.

This process is convenient, saves time, and conserves resources.

How Many Bank Accounts Should I Have and Why?

It’s a good idea to have optimum number of bank accounts.

But before discussing whether or not an individual should have multiple checking accounts, perhaps it would be wise to talk about the rationale behind any suggestions of having more than one checking account.

Reason 1

First of all, it is important to be reminded that FDIC only ensures up to a certain amount of an individual’s amount in their checking account.

As it stands right now the maximum amount of insurance by FDIC is capped at $250,000.

Therefore, if an individual expects or has more than that amount in their checking account then obviously a second checking account would be warranted.

Reason 2

A second reason why the individual may want to open another bank account is that they are interested in taking advantage of various bonuses that are offered by banking institutions.

Often, an individual comes across a bank that offers a financial bonus if they will start doing business with them by opening up a banking account.

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Reason 3

Another practical reason for opening up an additional banking account is if you want to segregate income and expenses from other accounts.

By having these transactions segregated it is easier to demonstrate segregated financial transactions and show accountability.

Reason 4

One other additional reason why an individual may want to open a separate bank account is the nature of business anticipated with that financial institution.

For example, a new account may be required if an individual wants to take out a loan of some sort for either home improvement or a line of credit.

This additional checking account would be a convenient way to deposit money and make automated payments on the repayment of the loan.

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Different Bank Accounts to Have and Why

Bank Account One

So, the question is how many bank accounts should I have as recommended by various financial gurus. The simple answer to that question is four.

Bank account number one would be your personal checking account to pay your personal bills.

One guru suggests that the money placed into this account would pay for household expenses such as rent or mortgage, utilities, paying automobile loans, insurance premiums, etc.

In other words, any bills that are paid to maintain the operation of the household.

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Bank Account Two

It is further suggested that a second account be set up to pay any bills other than what it takes to maintain the household.

Examples of bills paid from this account would include any nights out at a restaurant, entertainment expenses, or personal gifts for members of the household or for associates.

Bank Account Three

Bank account number three is strictly a savings account that is set up to manage any emergency spending.

Obviously, you would try to build this account up to the recommended level of having 3 to 6 months of money sufficient enough to cover the total expenses of the household.

For example, if your household expenses are $2,500 then the three-month minimum goal would be $7,500.

The caveat to this account is that money cannot be used from this account other than for an emergency situation that may arise.

The loss of a job, household repair, major kitchen appliance replacement, medical bills, could be paid from this fund.

How Many Bank Accounts Should I Have

Bank Account Four

The final banking account would also be a savings account.

However, unlike the emergency savings account, this account is money set aside in planning the purchase of major personal expenditures.

These expenditures would be defined as saving for a new vehicle, replacing household furniture, vacation, etc.

Other Bank Accounts FAQs

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How Do I Open a Banking Account?

Opening a bank account is a pretty straightforward process.

Before doing so, however, it is important to do comparison shopping for the right bank that you want to handle your money.

Important aspects of the bank’s policies that you should be comfortable with include the charging of any fees associated with business financial transactions, whether they have overdraft protection, what is their limit of ATM withdrawals daily, what do they charge for ATM usage if the ATM is not owned by the bank, what is their customer service like, etc.

It is important to remember that it is your money and you want to ensure that you keep as much of your money as possible and not have to worry about assessments that the bank may place upon your business transactions.

When opening a bank account some information that you will need to give to the customer service representative will be your date of birth, Social Security number, and proper identification.

Additionally, most banks require a minimum deposit in order to open a new account.

Also See: Family Banking and Everything You Need To Know.

How Can I Access My Money from my Bank Account?

The customer owning the bank account has a number of ways afforded to them in order to access their money. The basic way to access money is by writing a check.

Generally, when the account is open the bank will issue a certain number of checks that you can utilize when drawing money from your account and paying your bills.

Another way that an individual can access their funds is by drawing money out of an ATM. ATM stands for automated teller machine.

Generally, when the account is opened up a debit card is issued by the bank.

When going to the ATM simply insert the ATM card and enter your personal identification number that you had set up when opening up your account.

Once all of this has been completed a screen will appear and you can draw out an amount from your checking or savings account.

Of course, the limit would be your account balance. Be aware that daily withdrawals may be limited by the bank.

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How Does Bill Pay Work?

Another way that money can be actually accessed is through the bill pay convenience that most modern-day banks have set up.

All the owner of the account needs to do is set up their creditor or vendor information on the bill pay page.

Information needed would include the name of the bill to whom the money will be sent, account number, and mailing address.

Other related financial questions you might want answers to:

What is Direct Deposit?

To automate the deposits that an individual may receive during the course of the month, the banking system now facilitates what is called an automated deposit.

Most employers have this option for their employees to automatically deposit their salary into their checking account.

Other monies may be deposited in this manner such as money received from retirement plans, IRS refunds, Social Security, etc.

This is a streamlined system of quickly having access to deposited money as well as cutting down on unnecessary paperwork and avoids the issuing of checks through the mail system.

Also See: Tax Efficient Retirement Withdrawal Strategies.

Is Mobile Banking Safe?

Another convenience now offered by most banking institutions is the ease of mobile banking.

Generally, this requires the customer to download an app that has access to their banking accounts and information.

Also as part of the app, there is the option of depositing a check-up to a certain amount of money.

The individual simply takes a picture of the front and back of the check and clicks the appropriate buttons on the app.

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The deposit is automatically recorded in the person’s account.

It is also important to note that most banks have a policy regarding this process and some funds might be immediately available while other funds may be pending for availability given their verification of the deposited check.

This system is secure if the user uses a VPN or if a secure Wi-Fi connection is used that discourages individuals from capturing any personal information.

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What if I am Overdrawn on My Bank Account?

Sometimes, the banking customer might find themselves in the uncomfortable position of being overdrawn.

The policies of being overdrawn vary from a banking institution to a banking institution.

Some may allow for an automatic transfer of money to the checking account from a savings account to cover a deficit when expenditure is made and not enough money is in the account.

Also, it is important to know the policy of the bank as to whether there will be a fee associated with this.

Also, if overdrawn, the bank may issue a non-sufficient fund notice to their customer indicating that they were overdrawn.

Generally, the check is returned and there is an associated fee for this error.

It is important to remember that this happens to some of the best of us.

A simple transposition of numbers or not recording a check can certainly cause the checking account to be overdrawn and a bounced check to occur.

If this does occur it may be helpful to contact the bank to see if they waive any fees as a first-time offender.

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Personal Story

To realize how important something is in your life, the best way to find out is to not be able to enjoy that service.

A negative/positive story that I heard comes from an individual who abused their checking account.

They experienced a negative cash flow situation and found themselves bouncing checks or writing bad checks to which they did not have the money to cover the check amount.

Eventually, it all caught up with them and they were literally “blackballed” from using the checking account because of their abuse.

They were reported to ChexSystems and subsequently found it difficult to open a checking account.

Eventually, things worked out for them and they were able to convince a local bank that they had seen the error of their ways.

The locally-owned bank relented and allowed for the checking account to be opened for this individual.

The moral of the story is a checking account is a significant part of our financial personal life.

If we don’t have the ability to receive electronic transfers or deposit physical checks, we are not able to have the privilege of writing checks to satisfy our creditors.

Unfortunately, the only recourse would be to go to a check-cashing service that would charge an exorbitant interest fee.

The cash would then be needed to purchase cashier’s checks or money orders to pay creditors.

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Banking is Big Business

Banking is not what it once was. There are various banking institutions available today both physically in one’s community as well as banking online.

Each of these banks is clamoring for your banking business.

Whether you go with the cold and established big bank or the small friendly bank that prides itself on customer service, remember the choice is yours.

It’s your money. It is paramount to bank with a banking institution that understands that it is indeed your money.

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