Bank Accounts: When More is More
Share This
Photo: Daniel Y. Go
Everyone knows by now that long-term retirement planning is important, right? And you probably have some sort of budget or other system for planning daily, weekly, and monthly expenses.
Great. Glad to hear it. But what about those medium-term, medium-size expenses like vacation, car repair, furniture, and holiday spending? You know, the expenses that always seem to bite you in the ass?
Here’s my strategy: every time I get bitten, I open a new savings or checking account to collect money for a particular type of budget-busting expense. I’m now up to sixteen of them.
That’s just checking and savings accounts—it doesn’t include CDs or brokerage accounts. But bear with me, because I’m not insane: I really do have that many bank accounts, and it actually does make my life simpler.
In order to explain why I have so many accounts and why I think you should also have a bunch, let’s look into the past. (Cue dissolve and piano glissandos.)
The bad old days
I’m old enough, barely, to remember a time when most people had only two cash accounts: a checking account and a savings account. They were basically the same, except that the checking account let you transfer money to another person by writing on a little rectangular sheet of paper. This was so long ago that I can’t even remember what they called those things.
Schmecks, was it?
Back then, if you wanted to open a new account, you had to walk into the branch and sit down at a desk. If you wanted to set up an automatic monthly transfer between accounts—if your bank even offered such a service—you had to fill out paperwork. If you wanted to transfer money between accounts at different banks, you had to write yourself a schmeck or pay a wire fee. And if you had accounts at different banks and wanted to see them all at once in a single interface? Here, pal, take your free thermos and get out of my bank.
Yes, the good old days really sucked. Luckily, we don’t live there anymore, and we shouldn’t bank as if we do.
I have an emergency fund. A vacation account. A medical account. A short-term savings account. A home improvement account. An account to save for quarterly self-employment taxes. Each of these gets an automatic monthly transfer from my checking account.
To be clear, I do not have an account for groceries, entertainment, or rent. That really would be insane. This is only for unexpected expenses and things that take a few months to save up for.
A word from Chase
“Wait, wait, wait, you have 10 or 20 different accounts?” asked Tom Kelly, media relations staffer for JPMorgan Chase.
“Sure,” I said.
“To have all those multiple accounts, it’s complicated…you spend a lot of time on this?” He also speculated that I must be paying a bundle in monthly fees for maintaining low balances. (Chase charges $4 or $5 a month for savings accounts under $300.)
Well, he was right about the low balances, but I spend a few minutes—and not a dime in fees—on banking every month. Two of my accounts are with Chase. The rest are split between BECU (a Washington state credit union) and EmigrantDirect, a bank which offers online high-interest savings accounts.
Opening a new account at BECU or EmigrantDirect takes about one minute online, and it’s free. I can set up automatic monthly transfers between accounts and change them anytime. I can manually or automatically transfer money between banks for free. (This is called an ACH transfer, and some banks charge for it; be sure to ask yours.) And I can see all of my accounts together in Mint.com. If you’re wondering, having 16 cash accounts puts me in the top 0.6 percent of all Mint.com users. Where do I pick up my tiara?
Most of my accounts are savings accounts, and they earn a little interest. When I need to spend out of, say, the furniture account, I transfer money into my checking account (time invested: one minute) and head to Crate and Barrel.
What’s the point, though? Why maintain sixteen accounts when I could split all the money between one checking account and one high-interest savings account? Then I could use pencil and paper or Excel to keep track of how much of the savings account is dedicated to vacation, clothing, or medical. After talking to the guy from Chase, I started to wonder if I was a few pennies short in the mental account.
Join the Christmas Club
Then I spoke to BECU’s PR guy, Todd Pietzsch. Not only am I not crazy, said Pietzsch, but I’m not as cutting-edge as I think I am. “We used to have what was called the Christmas account, which is essentially exactly what you’re talking about,” he said. “But with today’s web-based technology, you can still have your Christmas account, you just name it ‘Christmas Account,’ right?”
Indeed I do. “So I’m not doing something you discourage?” I asked.
“Absolutely not,” said Pietzsch. “We identify the long-term goals that we have, and hopefully you do that through your retirement planning. But for your short- to mid-term goals, I think that’s a great tool to do that.”
Many credit unions, in fact, still have a Christmas account, usually called the Christmas Club. Typically, it’s like a hybrid of a savings account and a CD: you open it in January, set up an automatic weekly or monthly transfer, and pay a penalty if you withdraw before November 1.
There’s a penalty for withdrawal in my homebrewed system, too: Once the money is in a (virtual) box marked “vacation,” it’s like somebody stamped “vacation” on my benjamins. I feel dirty just thinking about taking money out of there and spending it on something else.
What I’m coming around to is a very old idea. Ever had someone recommend putting cash into envelopes marked with spending categories? This is great advice if you want to make a burglar happy, but it has never worked for those occasional major purchases, unless you own a kickass safe and hate earning interest.
Do it yourself
If you want to go down the many-accounts road, two caveats:
1. Choose a bank or credit union with an excellent web interface and unlimited no-fee deposit accounts. ING Direct, HSBC Direct, and many credit unions fit the bill. If you have to fill out paperwork to add an account or an automatic transfer, go somewhere else.
2. You can only make six withdrawals (of any type—transfer, ACH transfer, wire, ATM) per month from a savings account, or you’ll be socked with a big fee and possibly have your account terminated. So if you have a high-traffic spending category and want to use a separate account for it, make it a checking account.
Other than that, my system works great, no matter what Chase might say. Okay, here’s the downside: it makes saving so automatic and spending so guilt-free, you might sit all day refreshing Mint, like Scrooge McDuck with a computer.
Matthew Amster-Burton, author of the book Hungry Monkey, writes on food and finance from his home in Seattle.
Organize your financial life.
Use Mint.com to see where your money goes, get bill reminders and alerts, track your investment performance, and find extra savings. It’s FREE!
Find Out MoreHow Mint Can Help
See Where You Spend
Mint.com auto-categorizes all of your transactions so you’ll always know where your money goes. Find out more »
Popular Articles
30 Comments so far
leave a commentI’ve been doing that for years. All my accounts have a special name and purpose. Of course since I am unable to work, med. reasons, they are not full like they use to be. Sadly they are not immune to life, labeled or not.
yup
I tried to maintain separate accounts on ING Direct but I found it was too much of a hassle. Maybe when I have kids it will be more worth it to split up my extended emergency account into separate savings funds.
I was pondering this topic a few months back. Basically, I have a list of things I want to do that qualify as short/medium term projects in your nomenclature. Things like a new roof, vacation, LASIK, and a bunch of other things I think would just be cool to have and add some value to my life.
I also realized that I would just go buy something that I wanted, almost on a whim, but without any intentional saving. And as such, I didn’t get as much out of the purchase; there was not a lot of delayed gratification.
I like the idea of very discrete accounts that you mention. However, the maintenance and keeping straight what is where sounds like more trouble than it’s worth. Couple that with the fact that my credit union is currently offering 4.01% APY on checking accounts up to $25,000 and 1% after that. That is more than I can get at Emigrant/ING/etc. And that I can only have one of those accounts.
So to better appreciate my purchases and easily manage all this, my solution was to come up with a spreadsheet that lists the items I’m saving for and allocate a $ amount per month that would be contributed to that. And with some color coded charting, I now only allow myself to consider those purchases after my savings goals are met.
So same idea, but different execution. Good post.
Mark, what is the name of the CU? Great rate and hopefully will qualify. Thanks.
I was mentioning First Community Credit Union (www.firstcommunity.com).
If you are in the greater St. Louis area, I’d highly recommend them.
Their gotchas are:
- 12 debit card tranactions a month
- A valid email
- 1 direct deposit per month
I love duck tales.
multiple accounts is what i use right now only have about 7. I’ll have to look into this Christmas club.
Great article. I used to do the same thing and, to be quite honest, even with technology today, this takes a lot of thought and effort. I’m a CPA, and I still get tired of keeping up with that many separate accounts…especially if you want to set up the accounts for automatic download through Mint.com or Quicken. One solution I found (and no, I don’t work them) is http://www.smartypig.com. It’s a bank out of Iowa that has put all the tips you’ve described and made it into an incredibly user-friendly website. Basically, instead of separate bank accounts, you just set up goals. It’s all automatically deducted from whatever funding source you choose. I haven’t found a site out there that offers a higher interest rate either.
and Smartypig lets you set up a time framd–say 1 year to save for your vacation–so you know how much you have to save each month to get to that amount. They also now allow weekly and bi-weekly transfers so it makes it easier on people who are paid every week or every 2 weeks.
Matthew,
Great article, but you essentially just described SmartyPig. Why don’t you just save yourself the trouble and sign up for an account with them? The whole point of SmartyPig is “saving for specific goals.” They offer a highly competitve APY of 2.01% and are FDIC insured through West Bank. They allow multiple transfers and have partnerships with a number of retailers that allow you to increase your savings by cashing out through a gift card, or you can simply transfer the money back to your own account or onto a SmartyPig debit card when you’ve achieved your goal. Check it out!
And SmartyPig works great with Mint.com. Just add it as one of your accounts and you can use Mint.com to track your progress toward your financial goals.
After the envelope system allowed too much money in the house nearly 50 years ago we went to opening a checking and savings. Now it is 1 high yield checking account paying 6.01% with 10 debits and a money market and of course several CD’s. I use a ledger sheet with the accounts at the head of several columns. I do have a few checking accounts but they are held for higher for higher interest on CD’s, larger rewards on the cash back on credit cards or when we were paid for opening a checking account etc. When the 3 month or 6 month time period is up I close the checking. This month we have opened 2 credit cards which we have to use once to get $100 each on. We have received $100 this month for charging $100 on another credit card. I should be getting a checking within 60 days for $250 on another credit card when I charge another few dollars. We get paid 3% cash back on this card for our groceries, electric and gas, phone, internet, cable, fast food, cell phone etc. This card paid us $50 to use once and when it gets to $200 the will give us another $50. Actually on our gasoline we get 5% back and they take it off the bill. This card pays 2% on groceries also and 1 1/4% off everything else. They take it all off the bill. We have our credit cards paid in full and taken out of an account. All except the ones we have to use once and then we close them.
I only buy groceries that are on sale and we use coupons with them when we can. I stock up for the year when it is a good sale, going in and out of the store several times if there is a limit on the item. In fact my husband and kids have said I cannot fix a meal unless it is recycled thru the freezer. I cannot cook a roast unless it is from the frozen state, and also a ham must be frozen first or it will not taste very good. I only buy neck cuts of boneless beef roasts etc. Because of kidney problems, and high blood pressure use only fresh or frozen vegtables.
I shop for CD rates and got out of the market in Dec of 99. Will never get back in.!! Worked in a bank for 30 years and was a twp treasurer for 23 and I know what the investors did and will NEVER TRUST THEM AGAIN.
Great post. I just started a system like this and have been very pleased with how much stress it takes out of targeted savings.
As far as banks go, I would definitely throw Ally Bank into the mix. They’ve got great account offerings without many of the fees most places charge. A big plus to me was the availability of the customer service department and the great UI that their website has (much closer to Mint.com’s UI than that of most clunky bank websites).
I also just spoke with someone at Ally who said that they’ll have a checking account come mid-January.
I bank with PNC who has already implemented this in their Virtual Wallet product. It consist of 3 accounts. A standard checking, a reserve checking with an average interest rate, and a high yield savings account. Whats best the website allows you to enter events that you want to save for and allocate savings as you go along. At the end you hit one button and it will transfer the money from which ever account into your primary checking. Its the first time I have actually been pleased with the service my bank provides. And even better yet…….I have paid no fees since banking with them.
Sorry, I still think this is overkill. Unless you’re dealing with huge sums of money, there’s really no solid reason to have so many accounts. One large account that can be used as a ’slush fund’ for the incidentals you speak of would suffice — not to mention make things simpler and not require so much account tracking, etc. Sure, computers help make everything simpler, but that’s no excuse to not be smart or efficient. I have my entire net worth divided between only 6 accounts and love the simplicity of the 2-minute glance to determine exactly where I am. Between that and some serious cash-on-hand at all times, there’s no reason to stuff $100 in 12 different socks.
I think this system has the potential to work great, but I only have 3 categories I save for.
Are each the accounts linked so you don’t have to log in and out every time you want to check a balance? Not sure if that’s a dumb question or not, just never had more than one online account with a bank before.
Hey, thanks for the comments, everyone. Glad to see some debate.
Jonathan and Yiming, I signed up for a SmartyPig account and have been following their product closely but haven’t actually put any money in it yet. That will definitely change next year. (One of my goals for next year is to enlarge my emergency fund, and SmartyPig is perfect for that.) However, SmartyPig seems to be best for when you’re saving for a specific expense and plan to cash out the whole account when you’ve saved up enough; that describes some but not all of my accounts.
Mark, you’re talking about Bank of the Sierra, right? A friend told me about that product recently, and it’s very, very tempting.
Kentin, back when we had a slush fund to use for all these incidentals, we spent more money and had less to show for it. I’m not saying that would be true for everyone; this is a system for someone who was undisciplined about spending until he found the right scaffolding to rein him in. I can still see everything in a two-minute glance using Mint. As I see it, this is like making the bank and Mint take care of the color-coded spreadsheet for me.
Ryan, if you have multiple accounts with an online bank, you’ll see them all when you log in and can instantly transfer between them.
Two other notes.
1. Believe me, I know this is not for everyone. For me, however, the biggest obstacle to getting started with the idea wasn’t the actual procedure of making the accounts; it was admitting that it actually mattered to me whether the money was in a box labeled “vacation” vs just “savings.” I can’t really be dumb enough to fool myself that way, right? Well, yeah, I am.
2. I learned after writing this that ING Direct and Mint don’t always play nice together. So if you’re a Mint fan, ING might not be the best choice for a new account. Lee probably has more info on the latest status.
I was mentioning First Community Credit Union (www.firstcommunity.com).
If you are in the greater St. Louis area, I’d highly recommend them.
Their gotchas are:
- 12 debit card tranactions a month
- A valid email
- 1 direct deposit per month
This seems like a ridiculous solution to an easy problem. For the same effect, I keep a spreadsheet that lists all my “accounts,” though I have only a few real accounts. Transfers between my “accounts” are free and I can have unlimited transfers — I just subtract an amount from one part of the sheet and add it to another. The sheet is set up to know how much I should put into each account from my paychecks.
spreadsheets? now thats not as fund as it all happening automatically online or on your iphone.
I love it! I do the exact thing and refresh Mint on my phone about every 30 min on so don’t feel bad. Credit Union Banks are the best thing as well.
Thanks for the affirmation!
Rosie,
What cards are you using that get you 3% on gas and groceries ?
I think I need to switch.
I already do this! But right now, I use the envelope method too, but we’re in the process of doing everything online since Mint finally got our bank!!
Sweet! I’m in the top 0.6% of mint users as well, then!
I just want to note, we should include the small community bank. To often, when the term “Bank” is used, people think of think of Bank of America, Chase and other large banks. Community banks are regional, offer good benefits and a good banking experience in most cases, but due to the And just to note, credit unions did take TARP. Smartypig is a good example of a community bank offering a good product!
Sam, let’s start a club–like Mensa, only for people with too many bank accounts.
Great idea – - i have done this for years at my credit union and it works great. BTW — Facebook User – credit unions did NOT take TARP!! When the credit union’s insurance fund ran into some issues in 2009, the credit unions ALL dug in their pockets to stabilize it on their own. There was no TARP money taken at all. As a matter of fact, credit unions have always taken care of each other without the assistance of taxpayer money.
awesome article thank you! im happy I just learned something new, and i realized that i still havent fully escaped the “box” (as in thinking outside of). I have 4 savings accounts, one with my credit union, one with B of A because they gave me 50 bucks to open it (and their ATMs are convenient when i travel) I have one with citibank and one with FBNO. citibank and FBNO i opened because they had very high interest rates (3%), which have since come down to about 1%. I save my small “in case of unemployment” emergency fund in there. I wasnt really thinking about a christmas fund or a computer fund but this is an awesome idea. I have used my credit union savings to hold me over during the long wait between paychecks, and for my veteninary bill fund (it definitely works).
I am managing paying off 13 credit cards, (tilted tiara) and unfortunately i still use two of them for major purchases. If only i can turn all of those debts into saving balances. instead of already bought it will be what i haven’t bought yet, that would be AWESOME and after reading this article, that will now be my life time goal.
We are doing this as well. I’m trying to find a balance, tho.
We, too, spent unnecessary money out of the lump sum account and would run dry when the time came to actually use the money for which it was intended. Also, I don’t have time to sit there and figure out how the accounts are supposed to be divided into the spreadsheet. Bleh. It’s easier to figure out when the bill is due and divide the payments up, automatically transferring the money every month. No work involved beyond the planning stage! And when I realize I forgot an expense, I just add another account. Simple.
Most importantly, It’s way too tempting to spend “only” $180 on the wireless keyboards we’ve been wanting when there is $3000 in the slush fund and no expenditures owing for 3 months. However, when there are multiple accounts, I don’t see an excess of money, I see a shortfall.
Also, I feel a sense of security knowing I will have enough money when the purchase time comes around. With the slush fund, I was never sure since some months may not have any expenses and some months would exceed the amount in the slush fund. It was very disconcerting.
I have several acct for this same reason – but not 16. The problem is that with all the money split up, you don’t earn as much interest if the money was in only 2 or 3 accounts, compounded daily.