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The Benefits of Multiple Savings Accounts

Jar with money

Going with fewer credit cards and bank accounts can be a great way to simplify your personal finances, especially if you’re just starting out or trying to get out of debt. But once you’ve mastered the basics of budgeting and wriggled free of student loan or credit card debt, there are times when having multiple savings accounts actually makes sense.

If you’re still establishing credit, learning to budget, or dealing with debt, you would do better to focus on the basics. If this sounds like you, your best bet is tackling the basics of saving. Consider these four easy ways to save money. And make sure you know how to create a solid budget and have a plan for paying off student loans.

But if you’ve conquered the essentials of saving, budgeting, and managing your money, you might be ready for a more complex approach to saving. For example, instead of saving up cash in a jar for special occasions or events, you might open a new savings account instead. Savings accounts with one specific purpose, like summer vacation or holiday spending are often called targeted savings accounts.

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A targeted savings account is a savings account that you open for a specific purpose and begin putting money into for a set amount of time before withdrawing and using that cash. There are several ways you can benefit from multiple, targeted savings accounts. Here are some of them:

  1. Plan Better for Large Expenses — The main reason people like to use multiple savings accounts for large, irregular purchases is so they don’t have to pull the entire cost of these large, one-time or even once a year expenses from their regular monthly budget. Setting a little money aside each month makes these large purchases less daunting because it’s easier to set aside $20 or $50 each month instead of paying a lump sum of several hundred dollars from your regular budget all at once.

  2. Stay Organized — It might sound counter-intuitive, but having more than one savings accounts can help you stay more organized. Having separate accounts for specific purposes allows you to track what you have set aside toward each goal.

  3. Remove Temptation — When you have multiple savings accounts, each with its own purpose, you can help remove the temptation to spend your “extra” money on something you don’t really need or want. Many people are less likely to get off course when their goals are more targeted.

  4. Earn Interest — When you keep your savings in an envelope or under a mattress, you’re actually losing money by not earning any interest. But if you open a savings account while you save toward your goal, you’ll be earning at least a little interest on your money. You might also be able to take advantage of other perks, like an account opening bonus or maybe even a refer-a-friend bonus if you share your banking institution with your friends and family and they open up a new account too.

Ultimately, having multiple savings accounts is a good idea to help you stay organized and can even make it easier to reach your goals as you’ll lessen temptation and earn more with interest.