The ability to open multiple savings accounts are one of the benefits of having an account with an online bank. People sometimes refer to them as sub-savings accounts, but they’re actually new savings accounts located under your primary savings account.
Opening a multiple accounts allows you to create defined saving goals for things like “new laptop” or “vacation to Hawaii”. You can also create barriers within your money to help you visualize your savings progress.
These accounts act the same as your primary savings account; they still pay the same interest, they’re still attached to your bank, and they take less than 90 seconds to open.
Let’s take a closer look at the benefits of multiple savings accounts.
1) Create defined savings goals with easy transfers between accounts
Look at it this way. When you were twelve and you wanted to save money over time for a video game, you would store extra cash in a piggy bank or in a special place for that goal.
Multiple savings accounts are separate piggy banks for your savings goals. They allow you to see your savings grow over time as you save up for those big purchases. With the new accounts you don’t have to empty your savings or pay for an item over time on a credit card.
If you’re saving up for a car, you can create a new account called “Car Fund” or “OMG I want a Civic sooooo bad”. Whatever you like.
Transfers between your accounts are instant for most online banks and you can schedule transfers weekly, bi-weekly, or monthly which helps you easily grow your savings. You can create automatic transfers to your “Car Fund” account from your savings account.
For example, here’s how I would set up a transfer:
$2,500 paycheck deposited to checking on 1st of the month —–> transfer $1,000 monthly to savings on the 3rd ——>transfer $300 every month for 6 months to Car Fund on the 5th
Set this up once and it’s done. Your savings will grow with interest why you watch Glee or take a nap.
Your savings goal could be as small as a new phone or as big as a house. Whatever it is, it’s important to work towards the goal instead of funding it with a credit card and worrying about the consequences later.
2) Create an emergency fund
We’ll talk more about this later this week, but an emergency fund is an account with 3-6 months of living expenses that you only use for emergencies (job loss, accident,medical, etc.) I have one sub-savings account labeled “Emergency Fund” and every now and then I transfer money into this account. I never touch this money and treat it like I don’t have it. That way I’m not tempted to dip into it for a vacation or new laptop.
Having an account labeled “Emergency Fund” makes it more difficult to justify spending on a new iPhone or a trip to Vegas. Sometimes guilt is the best savings motivator.
How to Open Multiple Savings Accounts
On Sunday I’ll post a detailed write-up with screen captures showing how easy it is to open a sub-savings account at my online bank, Ally, but today I’ll give you a rough overview that will hopefully guide you through the process at your respective bank.
1) Sign in to your online bank.
2) Find the “Open new account” button and choose savings account. I’ve done this multiple times. It feels like you’re doing something wrong, but it’s fine. You’ll receive a new account number.
3) Fill in your information and name the account.
4) Fund the account if you wish.
5) You’re done. Set up a transfer, leave it be, or play around with it. Transfers between accounts are instantaneous for most online banks so test out how easy it is to transfer money.
You can also close the account at any time. Just transfer out any money in the account and they will ask you if you’d like to close the account. This may differ depending on the bank.
Won’t this Affect How Much Interest I Receive?
No. If you split up $3,000 into three accounts of $1,000, you’ll still receive the same interest.
Don’t believe me?
$3,000 in an account for 10 years that pays 3% will have $4,031.75
$1,000 in an account for 10 years that pays 3% will have 1,343.92 – exactly 1/3 of the above amount
Your money will still return the same amount so get those multiple savings accounts opened today and start working towards your goals.