Dubai: how many bank accounts should you have? Two – a checking account and a savings account? Or, only one – in a bank that does both? How about three or even more?
It is often said in online public forums that using multiple bank accounts can make budgeting easier and reduce expenses. But is it really useful? And are the associated costs worth such a step?
Yes, maintaining multiple accounts requires a bit of logistics. But thanks to the rise of online banking, it costs nothing.
Since online banks don’t have to spend any money on branch maintenance, they tend to have low or no fees. Many online accounts don’t charge a monthly service fee, and some don’t charge an overdraft fee.
Why do some people have so many accounts?
While some people get different bank accounts to manage their income streams or investments, some do so to take advantage of the high perks provided on these accounts, such as discounts, cash backs, and other offers.
Several accounts can even be accumulated in other ways such as if your employer provides you with a salary account or if you have opened an investment account.
You can also have multiple accounts if you jointly have one or more accounts with a business partner or your spouse.
In many cases, you might not have a choice, as some banks offer loans or credit cards only if you have a savings account with them. Plus, if you have a business, you need a business account.
Main risks to consider when you have multiple bank accounts
While having multiple accounts may seem like it simplifies your money management task, there are some important things to keep in mind.
• Not all accounts can have zero balance
Many banks require that you keep a minimum amount of money in your savings account. This is generally known as a minimum balance requirement.
In some cases, maintaining a minimum balance may allow you to reduce or eliminate fees or earn an annual percentage return (APY) or higher annual rate of return.
But not all accounts can be zero balance account, so check the minimum required balance and monthly service charge on the account and make sure you maintain it to avoid unnecessary charges.
• Check if fund transfer fees are charged
Transferring money from your account is generally free and safer than withdrawing and paying with cash. But sometimes you will be charged a fee on all the transfers you make, which is a percentage of the transfer value.
Check if there are any funds transfer fees charged on the accounts. So when you transfer funds to another account, add these fees and make the transfer.
Make sure not to transfer funds from one account to another as there may be a fund transfer fee.
How to fight against the above risks?
When getting a new bank account, make sure that certain perks are provided, such as limited or unlimited fund transfers, low or no minimum balance requirement.
Some bank accounts also come with discounts and rewards. Keep an eye on the rewards and use them.
If you have multiple accounts, here’s what you need to do:
Track everything in a spreadsheet: Manually track everything – we’re talking balances, interest rates, potential profits – in a spreadsheet.
You have to be pragmatic about this, say experts in the field. Track all login details, fund accounts with deposits, log in and verify accounts from time to time.
If you use this policy intensively, you should manage and monitor it regularly. So a spreadsheet is a great tool to give you that perspective.
Not only does the spreadsheet method help you keep track of everything centrally, but it also helps you avoid putting your financial information online, which many people prefer to avoid.
Limit transfers between accounts: While the advantage of having multiple bank accounts is to transfer money to each of them, you don’t want to transfer money more than necessary.
Transferring money too often can be confusing, especially if you use multiple bank accounts to help you stick to a monthly budget.
Your financial institution may also charge you a fee for transferring money to other institutions, and more importantly, the more you move your money between accounts, the less likely it is to earn interest.
Keep all accounts active: The reason many people have so many bank accounts is because it is part of their focused investment strategy.
But this strategy doesn’t work just by having so many accounts – you actually have to be an active user of each one so that they don’t get considered abandoned, which is no small feat.
It can be done with automated transfers, but if you have more than a handful of bank accounts it will still be a lot for the average person to handle.
According to experts, every bank account matters, so while you don’t limit them to a number, instead try to find the best deal if you are looking to maximize income from a bank account.
Minimize transfer fees: One tip that most experts offer in this regard is to focus on minimizing the fees for transferring between your accounts.
These fees can add up, defeating the goal of having multiple accounts. You can avoid these fees by checking out banks that offer free accounts.
If you plan to open multiple accounts, you should consider the time it takes to manage multiple accounts, monthly service, and minimum balance fees.
It is also possible to ignore and miss fraudulent activity, overbills or double charges. The bottom line is whether or not you can juggle multiple accounts as it requires business-like management.
Will opening multiple accounts affect my credit rating?
Opening and closing any type of savings account will not affect your credit score as it is developed solely from information that appears on a consumer credit report like your credit card history and of loans.
Instead, banks can perform a check that shows the past activity of a potential customer’s deposits. This includes things like bad bad balances, frequent overdraft fees, bad checks, and suspicions of fraud.
Key points to remember: what factors should I keep in mind?
First of all, make sure that you do not keep the same password for all your bank accounts. Because if one bank account is hacked, the likelihood that all of your other accounts will be hacked is higher.
The more accounts you have, the more work you’ll have to manage. While the automatic debit option can make your job easier, monitoring accounts is essential to make sure your budgets are on track.
It is recommended by financial planners that those with one or two accounts do not need to open separate accounts for each expense, as this can be a trap if you are unable to manage the accounts.
The main things to watch out for when you have multiple accounts are fees and / or fraudulent charges. Both can trump your income, which ultimately defeats the goal of having multiple accounts.
At the end of the line
It’s not your average investment strategy, and it takes a lot more work than most of us are willing to put in, many wealth managers reiterate. However, they add that this is a proven strategy for many, and a large part of it due to sharp money management skills.
And while spreadsheets aren’t for everyone, the good news is that there are plenty of digital offerings for managing money, whether it’s from your bank or from an app. All you have to do is decide what your preferred strategy is.