It is important to use every tool available for the best possible financial health. Bank accounts are one of many financial tools at our disposal. Banks let you safely store and use money quickly and conveniently. How you use different bank accounts ties closely to budgets and savings goals. So, how many bank accounts should you have? The answer to this depends on you and your individual goals. There are benefits to having multiple bank accounts. For instance, different banks offer various promotions or favorable interest rates. However, having too many can create other problems. Continue reading to learn more!

Is it a good idea to have multiple bank accounts?

When trying to figure out how many bank accounts you should have, you may wonder why have more than one at all? The answer is simple: you need to have different accounts for different goals. At the minimum, many people have a chequing and a savings account. The reason for this is to separate your day-to-day spending money and your savings. This is a clear benefit of having at least two accounts. Many find it easy to categorize their money into what’s available to spend and what shouldn’t be touched. This is a simple strategy that works very well for many Canadians. But what about having more than a chequing and savings account?

Having multiple savings accounts could help you reach various savings goals. It could also allow you to access higher interest rates for larger amounts held. Furthermore, having multiple chequing accounts can help you separate your various monthly expenses, by having separate day-to-day and separate monthly expense chequing accounts. The way you use multiple bank accounts is limitless and customizable. Make sure you have a plan and reason for each bank account you open. There is no limit to the amount of bank accounts you can open but there may be drawbacks to opening too many (we’ll get to that below).

Overall, it is a good idea to have multiple bank accounts. How many bank accounts you should have is up to you. It all depends on your goals, financial consistency, and life circumstances.

Related Reading: Banking vs Financial Services: What’s the difference?

Is there a risk of having many bank accounts?

There are risks with having too many bank accounts, as we alluded to above. This is why you need to figure out how many bank accounts you should have and what will optimize your personal finance management. When you figure out your ideal number you can navigate many of the risks. Or, you can assess the risks below and determine what is manageable for you.

Here are the main risks of having multiple bank accounts:

Bank Fees and Minimum Balances

Each bank has different service fees and related conditions. Often if you carry a minimum balance, fees will be waived. You need to be aware of these fees and keep track of all costs associated with multiple bank accounts. Understanding different banks’ fees and terms can be complicated and difficult to track. Perks and benefits make bank fees justifiable. However, if it can’t be justified you need to be cautious. Do not open too many bank accounts with monthly or service fees because it can become costly — both from a time and monetary perspective.

Alternatively, you can maintain minimum balances to ensure fees are waived. Tracking this becomes a different challenge, though. Often it can be difficult to maintain multiple minimum balances at the same time, especially if you need the cash.

An easy fix to potentially high bank fees is to consider a no-fee banking solution. Tangerine or Simplii Financial are great no-fee banking options. 

More to Keep Track of

With multiple accounts, there is a lot more to keep track of and manage. It may become overwhelming. Dealing with different banks, or even different account statements, can become confusing quickly.

To properly manage your funds, you need to have a good budget, discipline and a logical system. If you are missing these, spreading money over many accounts may spread your finances thin. There is the risk of going into overdraft accidentally. Making sure you have the right amount of money in each account can become a hassle.

Increased Risk of Fraud

Every extra account or access card increases the risk of fraud. The more points a potential fraudster has to target, the easier of a target you become. Multiple banks mean needing to keep track of and safe keep many records. This creates another risk that fraud will go undetected because you may miss signs of fraud with the overwhelming amount of documentation between all your accounts. With more that needs to be accounted for, the more areas of potential lapses in security.

Security risk is something to be considered on the bank’s end as well. Banks in Canada are heavily regulated and largely considered safe. But with more accounts with different banks, the more you expose yourself to potential breaches. You will have to follow any news on security breaches for each of your banking institutions.

Could Potentially Affect your Credit Score

If you have an account that goes into overdraft, this effectively becomes a loan. If this goes unpaid for a significant amount of time, a bank can act upon it. They may consider reporting this default to the credit bureau. This would negatively affect your credit score, as it would be considered a late or missed payment.

Normally the number of bank accounts you have would not affect your credit score since they’re not credit accounts. However, when money is owed and remains unpaid for a significant amount of time, banks do act upon it. And with more accounts, it easy for overdraft to go undetected. This situation would negatively affect your credit score.  

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How many bank accounts should you have?

How many bank accounts you should have, depends on many factors. Ultimately it is a personal decision to make. In the modern age, everyone should have at least one bank account. This makes collecting a pay cheque and paying for things much easier, considering much of our financial landscape has gone digital. Furthermore, most Canadians should have a savings account in addition to their chequing account. This is important for developing an emergency fund and saving for certain goals. But beyond that? That’s a personal preference!

Here are the advantages of having multiple banks accounts:

Customer Benefits and Rewards

Different banks have varying rewards and perks. Often, opening a new chequing or savings account with a particular bank could get you a period with no fees or promotional deposit interest. Occasionally banks offer special promotions like giving you free gifts or cash bonus if you open a specific kind of account. This is of course an example of banks offering you a product to open a new account with them. If you’re a fan of deals, you may want to optimize them by opening multiple accounts.

Another big draw of different bank accounts is interest rates. It may be in your best interest (pun intended!) to move money into high-yield savings accounts. Here is a comparison of interest rates for savings accounts in Canada for more details.

Ease with Budgeting

If you struggle with saving money, multiple savings accounts may help. Having a designated account for savings could be wise. Money could automatically be put into this account each month. This may help you save and avoid overspending. In addition, you can have different savings accounts for different goals. Perhaps you have one for your upcoming property tax bill, one for tuition, and one for a vacation. This way, you can save for each independently.

Different Needs

If you are a business owner, you have different needs from your bank than your average consumer. This requires a business bank account. As a business owner, you would still require a personal bank account to track your personal finances. This is the easiest way to demonstrate different needs and the corresponding need for different bank accounts.

Although, differences can come down to savings vs checking and joint vs personal; no fees vs fees or online vs in-person. If there is a type of account you need or service you need, the only way to access a particular need may be through a specific, separate account. By opening different accounts you gain access to things you may not otherwise have access to. 

Increased Financial Protection

In Canada, the Canada Deposit Insurance Coverage (CDIC) insures bank deposits. This coverage is for each member institution. Canadians are covered for up to $100,000 in deposits per institution. Meaning, if you have over $100,000 it is best to spread it over multiple accounts to maximize protection should a bank fail.

Further, while security is always a concern, Canada’s banks are very secure. Most major banks will refund or recover money lost through unauthorized access. Like in a case where someone steals your identity and financial data. However, you must inform your bank of this as soon as possible and within a reasonable time. Banks will not assist with the recovery of funds if an account was compromised because of your own action. 

Is 3 bank accounts too many?

Three bank accounts may be the perfect number of bank accounts for you. Many find it useful to have a chequing account and two savings accounts, each for different goals. But ultimately, how many bank accounts you should have is determined by you and your approach to personal finances. When deciding to open additional banks, consider your personal circumstances.

Does closing a bank account hurt your credit?

Closing a bank account does not affect your credit. The only time your credit would be affected is if you have a credit card, loan, or some other outstanding debt. When you close a bank account, make sure all related account details are in good standing. Then, there should be no negative effects on credit. 

Should I put all my money in one bank?

Some prefer to keep all their money in one bank because it’s easier for them to manage and track. However, others like to use multiple bank accounts to take advantage of different perks and benefits offered by each institution. At the end of the day, it depends on your relationship with money and what approach you find effective.

Do you need help managing your bank accounts? Advisorsavvy can help! Fill out this quick questionnaire to be connected with a financial advisor today.

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