Trends

How Many Bank Accounts Do You Really Need?

photo:  DucDigital

Remember opening your first bank account? Ah, the grown-up feeling of depositing your first check, the satisfaction of moving however little you could afford into savings and watching it grow.

Fast forward to today, and chances are you’re juggling between several banks. You’ve got a checking and savings account – they could even be the same ones you opened all those years ago. And you probably have at least one online savings or money-market account where your money works harder for you, thanks to somewhat higher yields.

If you’re like me, you’ve got eight.

Since depositing that first check, I’ve amassed a collection of three checking and five savings accounts. One of my savings accounts has a balance of $0.21, another sits empty, a third I tried closing months ago, to no avail. (At least they’re not charging zero-balance fees.)

In December 2009, the Federal Deposit Insurance Corporation released an incredibly comprehensive report on the so-called “underbanked” or “unbanked” segment of the American population: the 17.9% and 7.7% of households, respectively, who do not have or use bank accounts.

I have yet to find data as detailed and compelling that’s dedicated to the other extreme: the overbanked.

Granted, the overbanked are a relatively new breed: one born out of the rise of Internet banking and, not least, the success of online money-management services (such as the one responsible for this very publication).

Just a decade ago, shopping around for a higher yield on your savings account would have been a big pain in the neck. You’d have to go down the street (or across town) to another bank, wait in line to get to a bank teller’s glass-paned window and ask them to open a new account for you. You’d have to repeat the exercise whenever you needed to move money around.

Today, you can do it all with just a few clicks. “The ability to move money very easily from one savings account to another is definitely a factor [contributing to people opening multiple accounts],” says Greg McBride, a senior financial analyst at Bankrate.com.

Another one: the ability to stay on top of all your account balances just as easily.

“Online tools add to account proliferation and spreading out our money,” says Ron Shevlin, a senior analyst covering the banking industry at market research firm Aite Group. “It’s easier for you to track your money and see how you’re doing.”

Tools like Mint.com (disclosure: that’s us here) let you track multiple accounts in one place and even find potentially higher yields at other banks. It’s like a constant caffeine boost for us, yield chasers.

But even chasing yields is not the end of it. These days, many consumers are simply seeking convenience: the ability to save money towards different goals and track their progress separately.

ING Direct, the online-only banking arm of ING Group (ING), has been offering the ability to create so-called “subaccounts” for years. Each subaccount is technically an additional account with its own savings account number (and nickname, which helps you remember the purpose of that account), but you can see all accounts when you log into your ING Direct account, says ING Direct spokesman Jeff Mirabello. Currently, 10% of ING Direct customers have multiple accounts. (The five most popular nicknames, in case you’re wondering, are Savings, Vacation, Emergency Fund, House and Taxes.)

ING is not the only player in this field. Since its launch in 2008, SmartyPig.com has been helping people to do the exact same thing: create separate accounts tailored to different savings goals. SmartyPig attracts customers with a generous yield, currently 2.15% for balances under $50,000, and its social aspect: it allows customers to share their progress with family and friends and even let them contribute.

Neither of those institutions has minimum balance requirements or account maintenance fees – a perk you can find at many online banks, despite doom-and-gloom predictions of the disappearance of free checking. (Remember, though, in this case we are talking about savings accounts.)

After all, it works both ways. “The ease of moving money with just a few clicks forces banks to be more competitive,” McBride says. Even in this low-rate environment, you could be earning as much as 5% with a rewards checking account, or 1.4% with a plain-vanilla savings account with no strings attached. If you think that’s too low, consider that the average money-market mutual fund yield these days is 0.04%, according to iMoneyNet.com, and that’s a product that carries no insurance on your balance.

So how many bank accounts do you need, after all? Technically, you could do with just one. But if having more than that doesn’t hurt your bottom line and you could be doing better elsewhere, locking yourself into banking monogamy simply means you’re foregoing extra earnings or convenience.

How many bank accounts do you have?