Why you should have multiple bank accounts with a minimal balance in each

Over the course of a month, most bank account owners will provide their bank account information to at least one company. Realistically, the number is higher considering the number of bills that the average person pays each month. But, just exposing your bank account information to one company could put your funds in jeopardy in the event of a data breach.

Most consumers likely think that they need the standard checking account for spending, and savings account for stashing funds away. This is correct to an extent.

Bank accounts that everyone should have

At the very minimum, you should have three accounts. But, for the below example, a fourth account is used (and highly suggested) for maximum protection.

Reserves account

Your Reserves account is where the bulk of your money will remain until it’s ready to be dispersed to your other accounts.

The Reserves account, whether it’s a checking or savings account, should earn interest. Because your funds will sit in this account longer than any of your other accounts, it should be the account with the highest APY.

Funds in your Reserves account will earn interest until transferred to another of your interest-earning bank accounts.

Payroll account

Your payroll will be deposited into this account. Like the Reserves account, your Payroll account can be either a checking or savings account. But, it should pay interest. 

After your paycheck is deposited into your Payroll account, you should transfer the funds to your Reserves account, where your paycheck will continue to accrue interest. So, in the event that your employer’s payroll company or department is hacked, your hard-earned paycheck is safe and hidden away in your main savings account.

Spending account

Ideally, you should pay for items with your credit card to earn cashback and free up your cash throughout the month. But, there are times when a debit card or checking account must be used. So, you’ll want to have a checking account. The checking account should pay interest and/or pay cashback when the debit card is used.

Because of the risk of debit card fraud, you should keep the funds in your Spending account to a minimum. Keeping a low balance will also help you curtail your spending. Try to transfer funds to your Spending account only when you know that you’ll use the card.

It’s also okay to keep a small emergency balance of around $50. But, remember that credit cards are widely used. So, if you should have an emergency, it’s likely that you’d be able to just use a credit card. 

Payment account

Your Payment account will be used to pay your bills. If you’ve been following along, you can guess that we’ll suggest a checking or savings account as long as you’ll earn interest from the account. 

You should set up a bill payment schedule so that funds from your Reserves account are transferred to your Payment account. This will also help you in remaining mindful of your budget and spending. When reviewing your budget and bills, you could transfer funds from your Reserves account to your Payment account to cover bills that are due the following week.

Let’s explore further. It’s the first week of the month. Next week, your rent is due. Today, you would transfer your rent payment from your Reserves account to your Payment account. This could be done even more frequently if you don’t want funds to sit for more than a few days in your Payment account.

Benefits of having separate bank accounts

The main benefits of having multiple bank accounts is that it allows you to perform normal banking transactions, such as receiving payroll direct deposit, shopping, and paying bills, all while protecting your funds. It’s the same concept as wanting to conduct business with a company, but opting to give them a throwaway email account or one that you rarely check because you don’t fully trust them to respect your privacy.

There is, however, still a risk of a data breach. That is always a possibility. But, by keeping little to no funds in the accounts for which you’ve given the number to, you’re minimizing the risk of losing money due to fraudulent activity.

You should also be mindful of your bank’s dormant account policy. Some banks close customer accounts if the balance reaches a certain level. The typical amount is $0. You should be able to contact your bank or review the bank’s terms to find out what this threshold is.

The best part of managing your bank accounts in this fashion is all of your accounts are interest-bearing. So, whether your money is in your Reserves, Payroll, Spend, or Payment account, you’re earning money.