Why People Open Multiple Bank Accounts

Many people choose to open multiple bank accounts for a variety of reasons, from financial security to better budgeting. While this approach has advantages, it's crucial to weigh them against the potential drawbacks.

Advantages of Multiple Accounts

• Perks and Rewards: Banks offer incentives like cash bonuses, high interest rates, and cash-back on bills.
• Building a Savings Pot: A secondary account can serve as a dedicated savings fund, although specialised savings accounts may offer better interest rates.
• Keeping Business Separate: Essential for self-employed individuals to maintain financial clarity (Emma Spaces can help you with that).
• A Useful Back-Up: A second account can be a safety net if your primary account is compromised.
• Financial Protection: The Financial Services Compensation Scheme (FSCS) protects up to a certain limit per institution; multiple accounts can extend this protection.
• Spending Abroad: Foreign currency accounts may reduce transaction fees when travelling.
• Trying Another Bank: A second account allows you to test a new bank’s services without committing fully.

The Cost of Fees

While multiple accounts can be beneficial, they also come with costs that can add up quickly if not carefully managed.

Monthly Fees

Many banks charge a monthly maintenance fee, particularly for premium accounts with additional perks. Over time, these fees can accumulate, making it essential to assess whether the benefits justify the costs.

Overdraft Fees

Having multiple accounts increases the risk of overdrafts, especially if funds are spread thinly across different accounts. Each overdraft can incur substantial fees, compounding financial strain. Regularly monitoring balances can help mitigate these risks.

Financial Oversight Challenges

Managing multiple accounts requires diligent tracking. The complexity of overseeing numerous transactions can lead to oversight, errors, and missed payments.

Complicated Finances

Juggling multiple accounts can make it harder to maintain a clear financial overview, potentially leading to:

• Overdrafts due to insufficient funds in one account while another has excess balance.
• Missed direct debits or standing orders.

How to Stay Organised

To efficiently manage multiple accounts, consider:

• Automation: Setting up direct debits and scheduled transfers.
• Financial Apps: Using tools like the Emma App to centralise account management.
• Regular Reviews: Periodically assessing account necessity and performance.

Impact on Credit Score

Opening and managing multiple bank accounts can have consequences on your credit score.

Temporary Credit Score Dip

Each time you apply for a new bank account, the bank may conduct a hard credit check, which can temporarily lower your score. While the impact is usually small, frequent applications in a short period may be a red flag to lenders.

Responsible Account Management

To minimise negative effects:

• Space Out Applications: Avoid opening multiple accounts in quick succession.
• Maintain a Good Banking History: Regular use and responsible management can help improve your score over time.

Evaluating the Benefits vs. Costs

While multiple accounts offer some advantages, it’s important to weigh the pros and cons carefully.

When Multiple Accounts Make Sense

• If you need separate accounts for business and personal use.
• If a specific account offers rewards that match your spending habits.
• If you travel frequently and need a foreign currency account to avoid fees.

When It’s More of a Hassle

• If the management of multiple accounts becomes overwhelming.
• If you find yourself paying excessive fees that outweigh any benefits.
• If you struggle to track balances and end up overdrawing accounts.

Setting Clear Account Goals

Having a strategy for managing multiple accounts is crucial to ensuring they serve a purpose.

Using Accounts Purposefully

• Assign a specific role to each account (e.g., bills, savings, discretionary spending).
• Consolidate where possible to simplify money management.

Avoiding Unnecessary Costs

• Close unused or redundant accounts to minimise fees and administrative work.
• Regularly review account benefits to ensure they still align with your financial needs.

How a budgeting app can help

Managing multiple bank accounts can be tough, but apps like Emma make it easier by syncing all your accounts in one place. With open banking, Emma securely connects to various banks, tracks transactions in real time, and offers insights to avoid unnecessary fees.

Moreover, Emma Spaces allows users to create tailored budgets for different needs, like personal or business expenses, without needing separate accounts. This helps individuals better manage their finances and avoid the challenges of juggling multiple accounts.

Conclusion

Having multiple bank accounts can be advantageous for financial organisation and maximising benefits. However, the hidden costs—fees, complexity, and credit score implications—should not be overlooked. Carefully considering your financial goals and management capabilities will help you determine the right balance between convenience and cost-effectiveness.