Imagine this. You have all of your financial accounts with one bank. That’s right, you have a checking account, a savings account, a debit card, a credit card, a car loan, and a mortgage all with the same financial institution.
You’d think having all of your accounts in one place would make life easy. You don’t have to transfer money between banks or try to remember multiple logins and passwords. Having all of your accounts at one bank may even earn you status thanks to your loyalty.
Unfortunately, having all of your financial accounts at one institution usually isn’t the best idea. There are multiple reasons why you probably want to have more than one of the same type of financial account spread across multiple financial institutions. Here are just five reasons:
1. An outage could leave you in a major bind
Due to the connected world we live in, a simple website outage could cause havoc for your finances if you have all of your accounts at the same place.
Take Wells Fargo as an example
In February 2019, Wells Fargo had a major outage across their products. Smoke detected in a data center in Minnesota caused an automatic power shutdown which had major negative consequences.
To make matters worse, the shutdown happened on a Friday, the day most workers get paid. Wells Fargo customers couldn’t access their accounts and some of their direct deposit paychecks weren’t showing as being posted.
Having your financial accounts spread across more than one financial institution could have protected you in this case. As long as you have enough funds in each account to cover you in case of an emergency, you probably could have handled the Wells Fargo outage just fine.
You might have missed your paycheck for a day, but you could have used funds in your other bank account to hold you over until Wells Fargo straightened things out and got services running again.
2. One bank isn’t likely to offer the best product in each category
If you want the best in class banking product in each product category, you’re probably going to have to have accounts at multiple banks to make it happen.
Rarely will a single bank or credit union offer the best checking account, savings account, credit card, car loan and mortgage product. Instead, Bank A might have the best credit card while Credit Union B has the best car loan.
But where should you look for the best product in each class? Here’s a general guideline.
Try online banks for checking and savings accounts
Online banks typically offer the best interest rates, features, and the fewest fees when it comes to checking and savings accounts. Even so, one online bank might have the best checking account, but another online bank has the savings account with the highest interest rate.
For that reason, it pays to shop around and consider having each account at a separate institution if you truly want the best in class product of each category.
Traditional banks offer the best credit cards
The largest traditional banks usually offer the best credit cards. American Express, Bank of America, Chase, Citi, Discover, and Wells Fargo all have great credit card offerings when it comes to rewards. However, if you’re looking for a low APR credit card instead of rewards, major or local credit unions may have lower rates.
Credit unions are best for auto loans
The absolute best car loans are 0% APR loans offered by car manufacturers. If you can’t qualify for one of those, look at the rates offered by both local and major credit unions. This is one space where credit unions typically offer lower interest rates than banks.
The best mortgage rates are found pretty much everywhere
Finally, mortgages are one of the biggest loans you’ll ever take out. Shop all of your possible options including online banks, big banks, local banks, credit unions, and mortgage brokers to find the best deal for you.
3. You’re close to reaching FDIC or NCUA insurance limits
One huge reason to consider spreading your money across multiple bank accounts is bank and credit union insurance limits. If you have more than $250,000 in a single bank, you should consider spreading out the money to make sure it is all insured should your bank or credit union fail.
The Federal Deposit Insurance Corporation (FDIC) offers insurance of up to $250,000 per depositor, per FDIC-insured bank, per ownership category should an FDIC-insured depository institution fail.
Similarly, the National Credit Union Administration offers insurance of up to $250,000 per shareowner, per insured credit union, for each account ownership category should an NCUA-insured credit union fail.
So what exactly does all of this mean? Basically, you’ll get FDIC or NCUA insurance if your bank or credit union is insured. Look at your branch or your institution’s website to make sure they’re insured by either the FDIC or NCUA.
If your institution is insured, each account owner can get up to $250,000 in coverage. So, if you hold a joint account where each owner owns half of the account assets, the account would be insured up to $500,000 because each owner has $250,000 of insurance. Additionally, you get $250,000 of insurance per ownership category. FDIC considers ownership categories to include:
- Single accounts
- Certain retirement accounts
- Joint accounts
- Revocable trust accounts
- Irrevocable trust accounts
- Employee benefit plan accounts
- Corporation/Partnership/Unincorporated association accounts
- Government accounts
Most people should be able to cover all of their deposits by spreading their accounts across ownership categories. Even so, it’s nice to have accounts spread out across multiple banks or credit unions. This way, if your institution fails, you can quickly access money at another location so you can continue living your day to day life while the FDIC or NCUA sorts everything out.
4. You run a business
When you run a business, you should absolutely keep your personal and business finances separate. You can do this using just one institution if you’d like, but keeping your business banking at a separate bank can help make sure you don’t accidentally use your personal account for business transactions and vice versa.
But why should you keep your business and personal finance separate?
Mixing transactions can lead to legal troubles in some cases
In certain business structures, mixing transactions can open you up to personal liability when you would otherwise be protected. This is called piercing the corporate veil and essentially means your personal assets could be at risk if your business gets sued.
Not all business types have this protection, so check with your lawyer or accountant for more information.
Separating finances makes life easier
Separating your business and personal finances makes life easier, too. You can look at your business bank statement and immediately know how much you’ve deposited in a month or spent in a month assuming you run all of your finances through that account.
This can also make life much easier for your accountant come tax time.
5. Multiple accounts may make your money easier to manage
Most people think the smallest number of accounts possible makes money easiest to manage. However, having multiple accounts can help keep you accountable to your budget and allow you to save for specific goals.
Having just one account can make it difficult to keep track of how you’re allocating your money. Instead, some banks allow you to open multiple savings accounts and even nickname them so each account is associated with your a goal (in a minute, we’ll talk more about the accounts that offer this).
You can transfer money into these accounts, such as a down payment fund, a new car fund and a vacation fund. You’ll be less likely to transfer money out of the accounts if you’ve saved it toward a goal you really care about.
6. Default on your credit card? The bank might be able to take money in your checking account
Typically, credit card companies have to go through the courts to get a court order to seize your checking account balance to pay off a defaulted credit card. However, sometimes a bank may be able to seize your checking account balance without heading to the courts assuming your checking account and credit card are run by the same bank.
Read your credit card agreement carefully. If there is a section that talks about having a security interest in your bank accounts at that same bank, your checking account may be at risk. If you have your credit card at a bank separate from your checking account, the credit card bank would have to go to court to gain access.
Financial accounts to consider opening
If you’re looking to open an account at another financial institution, consider some of these accounts.
Discover Bank has a savings account that offers 2.10% APY, with no maintenance fees and no minimum to open an account.
The rate on the Discover Online Savings review is much better than your traditional brick-and-mortar bank or credit union. Read our full Discover Savings review.
Chime is a low-fee money management option for you to consider. They don’t have brick and mortar locations, and they pass the savings onto you, the customer.
They also have a great way to help you automate your savings – Rounds Ups will round up the transaction to the nearest dollar amount and deposit the difference into your savings account.^ Read our full Chime Review.^ Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.
Aspiration offers a choose-your-own-fee & fossil fuel-free account that provides everyday cash back, access to 55,000+ ATMs, and the optional Plant Your Change service. Read our full Aspiration review.
If all of your accounts are still at the same bank, it’s clear you should open at least one other account in case of an emergency.
Figure out what you want and open your account as soon as possible to prevent a potential disaster should your bank have a major outage in the near future.