Can having multiple bank accounts help curb spending? Image Credit: Supplied

Dubai: How many bank accounts should you have? Two — a current account and a savings account? Or, only one — at a bank that does both? How about three or even more?

It is often talked about in public online forums that using multiple bank accounts can make it easier to budget and spend less. But does it really help? And are the associated costs worth such a move?

Yes, maintaining several accounts do require a bit of logistics. But thanks to a rise of online banks, it doesn’t have to cost anything.

Because online banks don't have to spend money on branch maintenance, they tend to have low or no fees. Many online accounts don't charge monthly service fees, and some don't charge overdraft fees.

Why do some people have so many accounts?

While some people get different bank accounts to manage their income sources or investments, some have it to enjoy the high benefits provided on these accounts like discounts, cashbacks and other offers.

Multiple accounts can even be accumulated in other ways like if your employer provides you with a salary account or if you have opened an investment account.

You can have a number of accounts also if you jointly own an account or more with a business partner or your spouse.

In several cases, you may not have a choice, because some banks offer loans or credit cards only if you have a savings account with them. Also, if you have a business then you need a business account.

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Why do some people have so many accounts?

Key risks to be mindful of when having multiple bank accounts

Though having multiple accounts can seem to make your money management task simple, there are certain important aspects to keep in mind.

• Not every account can be a zero balance account

Many banks require that you keep a minimum amount of money in your savings account. This is generally known as a minimum balance requirement.

In some cases, maintaining a minimum balance may let you reduce or eliminate fees or earn a higher annual percentage yield (APY) or the rate of return in a year.

But not every account can be a zero balance account, so check the minimum balance requirement and monthly service fees on the account and ensure you maintain that to avoid unnecessary charges.

• Check to see if fund transfer fees are being charged

Transferring money from your account is usually free and safer than withdrawing and paying in cash. But at times you'll be charged a fee on any transfers you make, which is a percentage of the transfer value.

Check to see if fund transfer fees are being charged on the accounts. So when transferring funds to another account, add these fees and make the transfer.

Ensure you don’t transfer funds from one account to another back and forth as there can be fund transfer fees charged.

How do I combat the above risks?
While getting a new bank account make sure there are certain benefits provided like limited or unlimited fund transfers, low or no minimum balance requirement.

Some of the bank accounts also come with certain discounts and rewards. Keep a look at the rewards and make use of them.
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What risks do I need to be mindful of when having multiple bank accounts

If you do have multiple accounts, here’s what you should do:

Track everything in a spreadsheet: Manually track everything — we’re talking balances, interest rates, prospective earnings — in a spreadsheet.

You have to be business-like about it, matter experts opine. Track all the login information, feed the accounts with deposits, log in and check on the accounts from time to time.

If you’re using this strategy extensively, you need to manage and monitor it regularly, so a spreadsheet is a great tool to give you that perspective.

Not only does the spreadsheet method help you centrally track everything, but it also helps you avoid putting his financial information online — which is something many people prefer to avoid.

Limit transfers between accounts: While the whole point of having multiple bank accounts is to transfer money to each of them, you don’t want to transfer money more times than you have to.

Transferring money too often can be confusing, especially if you’re using multiple bank accounts to help you stick with a monthly budget.

Your financial institution might also charge you fees to transfer money to other institutions and most importantly, the more you’re moving your money between accounts, the less chance it has to earn interest.

Manually track all your accounts — we’re talking balances, interest rates, prospective earnings — in a spreadsheet.

Keep all accounts active: Why several people have so many bank accounts is because it’s a part of their focused investment strategy.

But this strategy doesn’t work by simply owning so many accounts – you actually have to be an active user of all of them so they’re not considered abandoned, which is no small task.

This can be done with automated transfers, but if you have more than a handful bank accounts, it will still be a lot for the average person to handle.

Each bank account has its significance, matter experts view, so while you don’t limit them to a number, rather try to find the best deal if you’re looking to maximise earnings in a bank account.

Minimise transfer fees: One tip most experts offer in this regard is to focus on minimising transfer fees between your accounts.

These fees can add up, defeating the whole purpose of having multiple accounts. You can avoid these fees by looking at banks that offer no-fee accounts.

If you are considering opening multiple accounts, you should consider the time required in managing multiple accounts, monthly service and minimum balance fees.

There is also the potential to overlook and miss fraudulent activity, overcharges or double charges. The bottom line is whether or not you can juggle multiple accounts as it takes business-like management.

Will opening several accounts affect my credit score?
Opening and closing any type of savings account will not affect your credit score as they are developed solely from the information that appears on a consumer credit report, like your history of credit cards and loans.

Instead, banks may run a check which shows a potential customer’s past deposits activity. This includes things such as unpaid negative balances, frequent overdraft fees, bounced checks and suspected fraud.
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Will opening several accounts affect my credit score?

Key takeaways: What factors do I keep in mind?

First and foremost, make sure not to keep the same password for all your banking accounts. Because if one bank account gets hacked, the likelihood of all your other accounts getting hacked are higher.

The more accounts you have, the more work it can be for you to handle it. Though the automatic debit option can make your work easy, it is crucial to monitor the accounts to ensure your budgets are on track.

It is recommended by financial planners that those who are holding one or two accounts need not open separate accounts for each expense as it can be a pitfall if you are unable to manage the accounts.

The main things to watch out for when having multiple accounts are fees and/or fraudulent charges. Both of which can outweigh your earnings, ultimately defeating the purpose of having various accounts.

Bottom line

This is not your average investment strategy and it takes a lot more work than most of us are willing to put in, multiple wealth managers reiterate. However, they add that it’s a strategy that’s proven successful for many and a major part of that is thanks to keen money management skills.

And while spreadsheets may not be for everyone, the good news is that there’s plenty of digital offerings for money management out there whether it’s from your bank or an app. All you have to do is decide which one is your preferred strategy.