Goals

Bank Accounts: When More is More

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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.