Bank accounts: How many accounts should you have?
In essence the decision on how many bank accounts to operate depends on several factors. Unfortunately most people continue to open bank accounts for the fun of it. It is quite commonplace to find individuals having between ten and twenty different accounts on the average.
The fact is that having too many bank accounts can be costly. Especially with the current rate of increased bank charges, fees and duties being levied on every customer. Attempting to add this up is likely to point out this area is one where people lose money. Please note that you’re helping the bank and not yourself by having so many bank accounts.
Let’s do a quick audit before we go any further. Take out a sheet of paper and list how many accounts you have. Populate your list with all the accounts you are actively using. Go on to include every account where you have money deposited, no matter how small. So what have you got? Five? Ten? Twenty or more?
So how many bank accounts should someone have?
I believe that the number of accounts should correspond to the stage one is in life. More accounts will be required as one progresses and succeeds in life. The vital question everyone must answer as I proceed to highlight the stages below is – What stage am I currently?
Student and thoroughly dependent
In this stage you need only a savings account. And one savings account in a bank that is stable and pays interest on savings, should suffice. Most times this account is chosen by parents and guardians. It is important that everyone should have a savings account. Everyone should save regularly.
Now what if you go to school away from your parents? You will require an account where they can send money. Open a second savings account to receive money, but continue to put something aside in your first savings account. You have no need for any other accounts at this stage.
Student but not completely dependent
Students who earn an income while in school fall into this category. Having a savings account is mandatory, while a second account, a current account is necessary. The current account allows you to issue cheques which might come in handy to transact business. You can receive money in your current account and continue to put aside funds in your savings account.
Please note however that a current account ensures that you pay bank charges for bank services. If you have additional sources of income, but are not running a business, then a second savings account may suffice.
An unemployed person has no need for having more than one savings accounts. This stage calls for savings where possible. It’s also important to avoid paying too much bank charges as there is no need for a current account.
Employed with one source of income
Employees with one source of income must open salary accounts to get paid. Salary accounts are variations of current accounts. They require the operator to pay certain fees. My suggestion would be to keep 1 savings account and the salary account.
The decision on which bank to use is normally the prerogative of the employer.
Self-employed with one source of income
Barbers, plumbers, carpenters and many small business owners constitute this category. Usually business cash based. My 2 savings accounts solution should suffice. People in this category are usually unhappy and unwilling to pay much by way of bank charges.
Employed/Self-employed with multiple streams of income
A good practice here might entail having a separate account for every business activity you are engaged in. This could end up becoming unwieldy when you are engaged in several activities. Your best bet is to keep current accounts for each business, especially when they are properly registered. This is, in addition to your single savings account. Registered businesses submit accounts and pay taxes.
Other activities that are not registered could be lumped together into your savings account. This could be termed additional income. In addition the need to embark on savings for specific projects will arise. This will necessitate opening a savings account to save for a project such as a car, house, holiday and the like. All these activities could see you managing five or more accounts. Taking a loan from a bank or using a credit card also necessitates opening accounts.
Retired people with one source of income should continue using the accounts they had as an employee. The self-employed hardly retire and continue to manage their multiple accounts for their various business interests.
Additional points to note when considering how many bank accounts to operate
- Do your due diligence before settling on the right account for you. Make sure to have an idea of what charges are due on banking transactions especially
- Little drops of bank charges can easily add up to a sizable sum in a year. Every account entitles you to pay charges.
- Technology has made it easier to manage banking transactions. You do not need so many accounts.
- Endeavor to keep funds in accounts you intend to manage/use. Close any accounts you do not intend to use where possible.
- The two major reasons why people have multiple accounts is their business goals, and changing from one bank to another without closing unused accounts.
Final word on bank accounts
In this era of spiraling bank charges it’s important to look closely at how many accounts one operates. Do your best to keep this to the barest minimum. Sophia Bera, founder of Gen Y Planning has written an excellent article on this topic. You can read it here.