You know that putting money aside is a good idea, but counterintuitive though it might seem, putting it all in the same place can make your budgeting more complicated than it needs to be. To keep things straight, why not sign up for multiple savings accounts and divide your savings for specific purposes?
Think of multiple savings accounts as folders
Like the old-school “envelope” or “bucket” budgeting system where you take your money and put it into an envelope marked for a specific purpose, this approach works the same, except it’s digital and automated by your online bank. As an example, you could have savings accounts for different categories, like this:
- Emergency fund
- Taxes Fund
- Vacation fund
- New car fund
- Wedding fund
The idea here is that by seeing all your saving goals separately, they’ll be easier to track. If you have just one savings account, on the other hand, you’ll only see an amorphous blob of total savings when you see it on your bank’s website, forcing you to track targeted savings somewhere else, like in a spreadsheet.
Plus, the other advantage to separate accounts is that it’s much easier to manage different goals at the same time using automated payments from your checking account. For example, you might put away $250 a month for six months to save for a vacation, while concurrently saving $100 a month for two years to pay for a new computer.
Avoid monthly fees when setting up multiple savings accounts
Unfortunately, the savings accounts that you get from brick-and-mortar banks almost always have monthly fees (usually $5-20) or high minimum balances. That’s why you should stick to online banks, which typically don’t charge monthly fees, have low minimum opening balances, and offer some of the highest annual percentage yields in the market. To help you get started with multiple savings accounts, Nerdwallet has a good selection of online banks you could choose from here.
This article was originally published on July 25, 2017 and updated on June 10, 2021 with new information and to reflect Lifehacker style guidelines.