Learn about the advantages and disadvantages of having multiple bank accounts, including how it affects FDIC insurance coverage, and find out how to optimize your banking strategy to maximize your returns.
Questions Answered in this Article
- What are the benefits of having accounts at multiple banks?
- The ability to mix and match the best features various institutions offer to maximize returns.
- Separating savings and checking accounts to resist the temptation to dip into cash allocated for specific purposes.
- Is it wrong to have multiple bank accounts at different banks?
- Maintaining and keeping track of multiple accounts and their requirements may be challenging.
- Some banks have a minimum balance or direct deposit requirements, which can result in fees.
- Does FDIC insurance cover multiple accounts at the same bank?
- FDIC and NCUA insurance usually covers up to $250,000 per depositor per ownership category, including single, retirement, or trust accounts.
- Joint accounts may have a higher coverage limit, up to $250,000 per person.
- What should I do if I want to insure more than $250,000?
- Add a joint account owner or open accounts with different ownership categories to increase coverage limits.
- Consider opening a cash management account or splitting money among multiple banks.
- Can customers benefit from FDIC insurance when using a neo-bank?
- Yes, FDIC insurance might be provided by the bank the institution partners with.
The Pros and Cons of Having Multiple Bank Accounts
Recently, the banking industry has been in the news due to the failure of some central banks, leading to concerns among consumers about the extent of their insurance coverage by the Federal Deposit Insurance Corp (FDIC). However, there is also good news for those with $250,000 or less in their accounts, as they are fully insured by either the FDIC or the National Credit Union Administration (NCUA), the credit union equivalent. This means that they don’t need to distribute their funds among various financial institutions to be covered.
Moreover, banks offer high-interest rates and various attractive features and services, such as ATM fee reimbursement and early direct deposit, to entice new customers. If you’re a customer at a neo bank, your FDIC insurance might be provided by the bank your institution partners with.
However, if you have more than $250,000 in your account or want to take advantage of better interest rates and other benefits, you may consider opening statements with multiple banks. Nonetheless, this approach has its own pros, cons, and considerations.
Benefits of Having Accounts at Multiple Banks
Apart from increasing your FDIC insurance coverage by distributing your accounts across different banks, there are several other advantages to having multiple bank accounts. One of the primary benefits is the ability to mix and match the best features offered by various institutions, which can help you maximize your returns.
Financial advisors, such as Jeremy Keil of Keil Financial Partners in Milwaukee, suggest having a checking account at one bank for bill payments and linking it to one or more high-yield online savings accounts at other banks. This approach enables you to shop around for the highest interest rates while maintaining a link between the accounts to facilitate transfers between savings and checking.
For example, you may prefer having a checking account at a bank offering ATM fee reimbursements or early direct deposit while keeping your savings at a locally owned credit union with nearby branches and higher yields on its savings accounts or certificates of deposit. By spreading your funds among different banks, you can benefit from each institution’s best features and services.
Moreover, separating your savings and checking accounts can help you resist the temptation to dip into cash allocated for specific purposes, such as emergency or vacation funds.
Challenges of Maintaining Multiple Bank Accounts
Maintaining multiple bank accounts may be challenging due to the difficulty in keeping track of their details and requirements. As the number of accounts increases, it becomes harder to remember important information, such as beneficiaries and usernames, which are crucial in case of incapacitation or death.
Additionally, there can be financial downsides to managing multiple accounts. Some banks have a minimum balance, spending, or direct deposit requirements on their accounts, and failing to meet those conditions can result in fees. Moreover, opening a new account at a bank for the sake of chasing high-interest rates may not always be beneficial. These rates are designed to attract new customers and may not remain high in the long term, so it’s essential to read the fine print to understand how these special offers work.
Community banking expert Keith Dragisich suggests that consumers should know the details of these offers before opening an account at a new bank. Regularly moving funds between different financial institutions requires staying on top of the fine print to ensure you don’t incur fees or miss out on benefits.
FDIC Insurance Coverage for Multiple Accounts
FDIC and NCUA insurance usually covers up to $250,000 per depositor per ownership category, including single, retirement, or trust accounts. Joint accounts may have a higher coverage limit, up to $250,000 per person. For instance, if two people co-own a statement, the entire balance could be insured for up to $500,000.
How to Insure More Than $250,000
Various options are available if you want to insure more than $250,000. One option is to add a joint account owner, which can increase the coverage limit to up to $500,000 for joint accounts. Another option is to open accounts with different ownership categories, such as retirement or trust accounts, as each type can have separate coverage limits of up to $250,000.
Additionally, you may want to consider opening a cash management account that provides a higher insurance limit than traditional bank accounts. Alternatively, you could split your money among multiple banks to ensure each deposit is covered by FDIC insurance.
Opening accounts at multiple banks can also help you choose the best features of different institutions. Still, it is essential to manage the bills and keep track of their requirements.
Summary
- FDIC and NCUA insurance covers up to $250,000 per depositor per ownership category.
- Multiple bank accounts can increase FDIC insurance coverage and enable you to benefit from different institutions’ best features and services.
- Having a checking account at one bank for bill payments and linking it to one or more high-yield online savings accounts at other banks can help you maximize returns.
- Maintaining multiple bank accounts can be challenging due to the difficulty in keeping track of their details and requirements.
- Some banks have a minimum balance, spending, or direct deposit requirements on their accounts, and failing to meet those conditions can result in fees.
- Regularly moving funds between different financial institutions requires staying on top of the fine print to ensure you don’t incur fees or miss out on benefits.
- FDIC insurance coverage can be increased by adding a joint account owner, opening accounts with different ownership categories, or opening a cash management account.
- Opening accounts at multiple banks can help you choose the best features of different institutions, but managing the bills and keeping track of their requirements is essential.
