It's not an unusual question, but it's also not simple. Some claim that having multiple bank accounts is the path to getting on top of your finances. However, at the same time, having too many may be confusing and perhaps even costly.
Getting disciplined will benefit you in various ways, including assisting you in breaking the paycheck-to-paycheck cycle, paying off debt faster, and achieving your overall financial objectives. It can also help you in keeping track of your finances. So, how can having various bank accounts assist you in achieving these objectives? What is the maximum number of bank accounts a person may have? Let's take a look and see what we can find out.
What Types of Bank Accounts Should You Have?
1. Checking account
This is often the primary account that a bank would open for you to get a monthly paycheck. A checking bank account provides you with the most immediate and easy access to your money and is typically used for bill paying and everyday financial activities. In addition, they allow you to make as many payments as you require. Unlike savings tools, you typically have no restrictions, plus most financial entities offer different types of checking accounts, making your choice more versatile.
Some demand a minimum deposit, while others charge a monthly fee and limit the number of checks you may write monthly. Indeed, the number of checking accounts you may or should have mainly relies on your budgetary requirements. Here are a few reasons why you might want to have multiple checking accounts:
- You will undoubtedly want a separate checking account if you operate a business. You must maintain your personal and professional funds separate. This will make it much easier to keep your business costs and earnings independent.
- Some folks will also open a secondary checking account for debts and spending. This way, people may be confident that they will have enough funds to cover their monthly costs and set aside extra cash for a rainy day.
2. Savings Accounts
Savings accounts are available in many sorts and shapes. However, you'll most likely hit off the following while you browse:
A Regular Savings Account: A regular savings account is the most basic financial tool to keep your funds. These are available from most banks and credit unions, allowing you to deposit funds, collect interest, and make withdrawals as needed. However, regular savings accounts may have limitations, such as a cap on how many withdrawals you may make.
An Online Account: The number of online service providers has increased dramatically in the last decade. Higher interest rates and lower monthly fees are common perks these institutions offer. You generally receive the ease of rapid service at the push of a button. Traditional lenders have subsequently established their own online savings solutions in response to this trend. On the other hand, online savings accounts provide greater interest rates worth investigating.
Certificate of Deposit (CD): A certificate of deposit is similar to a savings account, except that you cannot withdraw your funds for the period agreed upon deposit agreement. If you withdraw money, you'll be penalized for the interest you've earned.
Because of the penalty, a CD may not be the greatest solution if you require immediate access to your money. On the other hand, a CD may just be what you need if you want a greater rate of return without having to access your money.
3. A Retirement Investment Account
When deciding types of bank accounts, consider your retirement funds as well. An Investment alternative exists in different forms and sizes, and selecting one should be done with caution. The primary objective of investing instruments is to support you in reaching your retirement savings objective or a long-term goal. In simple terms, retirement investment helps put your money to work.
A 401(k) Plan
A 401(k) is a company-sponsored retirement savings plan that many employees offer. The main benefit of this plan is that the money is removed directly from your salary, so you cannot miss any monthly contribution. Plus, contributing to your 401(k) reduces your taxable income, which means less money goes to the IRS (Internal Revenue Service). However, on the other hand, 401(k) applies quite strict penalties if you withdraw cash before reaching the retirement age.
Don't despair if your workplace doesn't provide a 401(k). You may have other options for staying on top of your retirement planning. For example, if you quit a job, you can roll over your 401(k) into an IRA.
The Internal Revenue Allotment (IRA)
If your company doesn't provide a 401(k), you'll need to opt for an IRA. You may open an IRA account on your own while the 401(k) is sponsored by the company only. Both provide tax benefits, but the 401(k) comes with additional benefits like a matching contribution. One of the most significant benefits of an IRA is that it gives you access to a wide choice of investment possibilities, allowing you to work with a financial planner to find the best match.
403(b) vs. 457(b)
For those who work in tax-exempt organizations such as non-profit organizations or public schools, a 403(b) is a typical retirement plan. School administrators, nurses, physicians, government personnel, and academics may also access this plan.
On the other hand, a 457(b) retirement plan is designed for government agency employees, such as police officers and firemen. The most common alternatives for this investment option are mutual funds and annuities.
4. Non-Retirement Investing
If you've established your retirement plan but still have money left over, non-retirement investing can be a good choice. Many advantages come with a regular investing account, including the flexibility to access your assets without penalties and the opportunity to save outside your 401(k) or IRA. These are available through brokerage firms such as Vanguard or Fidelity.
5. A 529 Plan
A 529 plan, otherwise known as a custodial account, is ideal for saving for your children's education. A 529 plan may be used to pay for education costs from primary school to university. The main advantage of a 529 plan is that withdrawals towards education expenses are completely tax-free.