How Many Financial Accounts Are Too Many?

Daniel Penzing
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How Did You Get Here?

Financial plans and goals can get complex quite quickly as we get older. We start out with a goal of paying off debt and ultimately we end up with high-yield savings accounts, investments and retirement money.

There is no one rule I have to account for, but I can give some general rules that are valuable to keep in mind.

You may have too many accounts if:

  • Fees are draining your cash.
  • Your financial records are not organized or accessible.
  • You spend more time managing accounts than actually collecting returns.
  • You don’t remember why you have it.
  • You don’t know when you'll need it.
  • You are overcommitting yourself to meet high minimum balance requirements.
  • You owe taxes on uninvested income.
  • You are earning less than 0.5% in interest.
  • You are not managing a few accounts effectively.
  • You have opened and closed accounts you don’t need.
  • You reach the maximum saving limit quickly.
  • You are funded with different goals.

Downsides to Having Too Many Accounts

If you have multiple high-interest accounts, it should be a good thing. When it comes to your finances, however, having too many accounts can sometimes be more than a good thing. While there is no hard and fast rule for deciding when a savings or checking account has become a bit excessive, it is easy to figure out whether you have too many.

Taking a close look at your need for multiple accounts will help you verify whether this is the case. Consider the following downsides to having more financial accounts than you need:

Distracted Search

Accounts can get scattered about pretty easily. Even if everything is listed somewhere that you know where to find it, your brain will be drawn to the wrong account. Instead of helping you to save in the moment, you only end up losing money by making errors. Part of the reason for this is that your brain’s desire to save often comes in the form of a trigger. If you have multiple accounts to access, multiple triggers appear when you are looking to save. Having multiple accounts to save in means that you will be less likely to save in the moment when you should.

Forgotten Money

Why do you have multiple bank accounts? Are you keeping up with them? Is it just easier to have separate accounts for different purposes, such as separate checking accounts for work, investments, and personal expenses? Or do you have a separate account for each bill you pay, or separate accounts just in case you need to pay a bill or two at a time?

How many bank accounts are too many? It’s hard to say whether the number of bank accounts you have is too many. In the end, it’s all about managing the accounts you have, keeping them separate, and knowing your limits.

Tracking Multiple Accounts

Having several bank accounts is not that much different from managing several savings accounts. When you manage all of them fairly and consistently, it’s easy to follow all your accounts. The important thing is to avoid having accounts with conflicting interest rates or due dates, and to track your finances on a daily basis.

Fees

Many of us have more than one financial account. Savings accounts, retirement accounts, checking accounts, multiple credit cards … the list goes on. These accounts are valuable tools that help us manage and organize our money.

But how many is too many? Below, we answer this question and walk you through the many potential pitfalls that come with having too many bank accounts.

Yes, I have more than one bank account.

Even one bank account has the potential to cause us trouble. What if you forget your password, or lose your debit card? If you’ve opened several bank accounts, it can be even more difficult to keep on top of your finances. Some people even open new accounts in order to qualify for sign-up bonuses or to earn rewards or other perks. But although opening a new account may seem like a smart idea at the time, having too many bank accounts can end up costing you in the long run.

The fees you’re charged for having too many bank accounts can quickly mount up. If you have too many credit cards, they can also ruin your credit and lead to higher interest rates when you try to borrow money.

What about all the different bills?

You may have multiple checking and savings accounts simply because you want to help organize your finances and keep bills separate. Some people have separate accounts for rent, utilities, student loans, and more.

Your Money Doesn't Earn What It Could Be Earning

How many checking, savings and investment accounts do you currently have? If you happen to have over five (or another number agreed-upon by you, your spouse and financial advisor), you need to consider consolidating these accounts.

You can think of this as a piggy bank, with its own bank, stuffed with your money. But isn’t money worth more in accounts with higher interest rates and lower fees? If you are earning more interest, then how can you really be losing out?

Well, before we get into this question, let's first look at a few reasons why you should consider consolidating your financial accounts.

You Might Not Have True Diversity

Unnecessary Effort

Have you ever sat down and thought about how many financial accounts you have? If you really stop and take the time to think about it, the number may surprise you. You may have never looked at the number of accounts you have in the past, but now you should sit down and take a look.

So many times, consumers are lured into opening new accounts, either by direct mail campaigns or by a salesperson in the branch. This often can just lead to consumer confusion and wasted time. One of the dangers of over marketing, which often happens in a poor economy, is that it leads to products becoming new standards. I mean, who can remember the last time you got a piece of direct mail, but also a phone call and a follow up call asking you to open an account.

Consumers are really just confused. This is where companies lose out on a sale because the consumer is standing there in the branch wondering which of the three sales people he or she should listen to.

During the last recession, and leading up to it, many companies, especially some of the smaller ones, lost customers because people would often have multiple relationships with these companies. There is a great danger in a relationship if an account holder sells her home, moves to a new town, or is just fed up with a particular company and the interest rates are not competitive enough to remain a customer.

Reasons to Keep Some Accounts Separate

Your personal finances can get complicated and when you get into a serious relationship with someone, the streamlining of your finances can get messy. For some couples, there's no such thing as too many joint accounts. But if you find that you're spending more and more time trying to reconcile the finances, you may want to consider setting up a few separate accounts. The more separate accounts you have, the easier it will be to keep track of what's going on and you may be able to identify and reduce some of your spending triggers.

If you and your partner have these two or more separate accounts, you'll also find it easier to take care of your own money separately if you end up breaking up.

Here are some of the reasons to consider dividing your finances:

{1}. To make it easier to keep your finances separate.
{2}. To allocate spending money
{3}. To reduce the possibility of spending going over budget.
{4}. To keep spending on recreation from impacting your eating out costs
{5}. To keep using your personal credit cards separate
{6}. To give each partner an allowance
{7}. To give each partner a credit card for buying personal expenses
{8}. To make it easier to break up with no hard feelings
{9}. To make it easier to manage money during a difficult time
{10}. To keep your own money if your partner doesn't pay child support

Streamlining Your Finances

Not having too many financial accounts is a personal decision. After all, it’s your money, and whatever works for you is the right choice. However, it’s important to know your options. When I first started my financial life, I only had one checking account and one savings account. When I got married, we opened up one joint account. This was fine until we had kids. Since they didn’t have enough money for a checking or savings account, they had to use my own personal accounts. As the kids grew up, they received money from family and friends for various occasions, and at some point, they had multiple accounts with different brand names.

At that particular time, we had three checking accounts, and three savings accounts. But it didn’t feel right. I felt like I was complicated my kids when it came to their own finances.

So we made a decision that cleaned up our finances immediately. We decided to open a savings account for each kid. We also decided to close all of their other accounts, and the one joint account. Then we converted all of the money into one of the kids’ savings accounts.

Bottom Line

Just why do some people have hundreds of bank accounts? Wouldn’t having a bunch of accounts unnecessarily complicate things, and even make it harder to manage your finances?

Maybe, but I think it depends more on the individual’s circumstances.

For instance, it is not uncommon for wealthy or high-earning individuals to have multiple bank accounts because they have an abnormal level of wealth and income. As a result, they may have multiple accounts because administrating their bank accounts and investments is simply impractical.

Widening the scope to all asset holders, it is also possible that people have multiple accounts because it is the most practical thing to do for them. I have known plenty of people who live a nomadic lifestyle. For them it makes more sense for them to have a checking account at a local bank near wherever they happen to be living. Then again, having one transaction account helps keep the finances organized; and it is not like people are paying separate transaction fees or annual fees for each bank account.