As a Salary Earner, How Many Bank Accounts Should You Own?
It’s necessary to have a bank account especially when you have a job or a business that generates salary or income. But how many bank accounts do you really need? This is where it becomes a classic case of ‘different strokes for different folks’ and we understand why.
For some people, a single salary account is all they have. Some have 2, some 3 and then we have those who own as many as 4 to 5 bank accounts. This article will help you understand how many bank accounts are manageable and how you can get full value from each.
We will look at the pros and cons of having multiple bank accounts and some very pertinent questions around your saving habit. These are factors that will ultimately determine how many bank accounts you should have.
Are you able to save on a regular basis?
It’s important that you create a budget that encourages you to consistently save a portion of your earnings. If you don’t do this already, you should draw up a list of all your income (salary and other earnings if you have multiple streams of income) and your monthly expenses (including your fixed and fluctuating expenses). When this is done, you will be able to cut back your spending as much as you can to create room for saving.
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Would You Consider Automating Your Savings?
One of the most efficient ways to save a portion of your salary is if you automate the deduction. One way to do this in Nigeria is through Voluntary Contribution (extra funds you can opt to add to your mandatory pension contributions). You can also achieve this by instructing a trusted bank like First Bank to help you automate the process for you through standing orders; especially if First Bank also runs your salary account. The flexibility of this method will make it possible to increase how much you want the bank to transfer to your savings account whenever you wish to do so.
Now that we have taken a look at your savings habit and how you handle your savings, we will move to the pros and cons of having multiple bank accounts. The points we will discuss will help you understand how many bank accounts you should own as well as ensuring it fits into your lifestyle.
Pros of Having Multiple Bank Accounts
The process of opening multiple bank accounts is quite easy in Nigeria. There are banks that will help you open an account with ‘zero deposit.’ Below are reasons why you might want to have more than one bank account:
1. Helps you Create Multiple Savings Objectives: In a situation where you want to save towards 2 or 3 separate things such as a vacation, your rent and a car, you can open three separate accounts in 3 separate banks and assign each one to one of the projects you are saving towards. After you open the accounts, you can easily monitor the progress of each account as your savings grow.
2. Addresses Your Fear of One Bank Failing: The Central Bank of Nigeria will ensure that you get your money back if your bank finds itself in troubled water and goes bankrupt but this might take some time. However, multiple bank accounts give you other bank accounts to fall back on in the event that this happens to one bank.
3. Helps You Find a Bank You Really Like: When you have different bank accounts, it gives you an opportunity to weigh the services of different banks until you find one or two that you really trust and can stick with for a long time to come.
4. Makes it Easier to Save in a Separate Account: If you save your money in the same account that you use for your daily and weekly spending, then there is a strong chance that you will find it extremely difficult to save. Having more than one account cuts down the temptation to keep dipping your hands into your savings.
5. Gives You Multiple Perks: Different banks offer diverse interest rates. Some even go as far as offering you special perks for opening an account. You can take advantage of this when you operate multiple bank accounts.
Cons on Having Multiple Bank Accounts
Despite the horde of advantages you can enjoy from having multiple bank accounts, there are several reasons why it might not be the best decision for you. Take a look:
1. The Risk of Losing Money: If you are not meticulous enough to constantly keep a mental note of the number of bank accounts you have and how much you have in them, you could make the mistake of forgetting an account especially if you don’t credit it with saving regularly. If you know this is one of your weaknesses, it’s better you stick with one bank.
2. Bank Charges: You have to be mindful of bank charges when you operate multiple accounts. If you run 3 current accounts, you should expect to pay some charges for these accounts especially when such accounts have a low balance. When you split your earnings into such accounts, you should expect to spend more on charges than you would have spent if you had one account.
3. Losing Out on Higher Interest: Banks in Nigeria pay a higher interest rate on a larger account balance but if you are keen on splitting your money into several accounts, you would end up with lower interest rates.
4. It Could Easily become Confusing: In a situation where you have decided to save a total of N100,000 across 4 bank accounts monthly and you receive a bonus from the parent account, you might have a hard time deciding which of the accounts you want to channel that into. If on the other hand, you have only one account, you won’t have to bother about this sort of decision.
5. Automated Transfers Can Get Complicated: The more accounts you decide to automate transfers to at the end of the month, the more complicated it gets especially when you run as many 4 to 5 bank accounts. Keeping track of the transfers into your various account would require much more work than if all your money was in one bank account.
6. Building relationships with Financial Institutions Become Tricky: Splitting your money into so many accounts over a long period of time will leave you with a lot of money in different accounts. Banks, however, prefer to build relationships with customers who have a large deposit in a single account. If you own several accounts, you risk losing out on building such relationships.
If you consider yourself to be extremely meticulous, then you might not have a problem operating multiple accounts but you need to pay great attention to bank charges you risk incurring when you run multiple bank accounts.
Remember that there are immense benefits to be derived from having a huge account balance in a single savings account as opposed to spreading your money into many accounts.
A good example of benefits to be derived from building relationships with banks can be found at First Bank, which created a network of merchants to reward cardholders. This perk helps you enjoy fantastic discounts on goods and services, cash-back rewards on transactions and acceptance of their FirstClub loyalty points for payment.
Before you make that final decision on how many bank accounts you really need, you should find out the interest rates of respective banks.
How many bank accounts do you now think you need?