Ask a Nerd: How Should I Set Up My Bank Accounts?

Having the right combo of bank accounts can help you manage your money better by taking advantage of different perks.
Spencer Tierney
By Spencer Tierney 
Edited by Sara Clarke

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The starter homes of a banking relationship are your checking and savings accounts. But just as you might organize your home differently, or even move to a new home, the way you organize your bank accounts may require changes over time.

If you’re like me and still have accounts at the same bank as your parents, maybe enough has changed in your life to consider if a new bank would better fit your needs.

Let’s determine both the right type of bank and best combo of accounts and tools for you.

Which bank accounts are for me?

You probably don’t need to think too hard on this one. Checking accounts are for spending, and savings accounts are for saving money and earning interest.

But you might need additional or specialized accounts, so ask yourself:

  • Do I plan to share finances with someone? If so, you might want joint accounts.

  • Do I want some savings out of reach? Certificates of deposit are a type of savings account that do just that, and they can earn you a high guaranteed rate.

  • Do I want a higher savings rate or lower fees? Online banks offer high-yield savings accounts and high-yield CDs, usually with minimal fees and low opening minimums. The best rates are above 3%. These options might be supplemental to your primary accounts.

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How many bank accounts should I have?

The quick answer is: It depends.

The ideal number is “the fewest accounts necessary to meet your goals and sustain your household,“ says Derek Brainard, national director of financial education at the nonprofit AccessLex Institute. “Two is the bare minimum, but a lot of people go beyond that just for sheer organization’s sake.”

Multiple deposit accounts might help you budget by effectively using an online version of the envelope system, which traditionally involves putting cash into envelopes earmarked for specific bills or goals. Instead, you can have a savings account for each goal or a checking account for different types of expenses, which might be way more convenient than ATM cash withdrawals and using envelopes.

But this setup may not be for everyone.

“Do multiple accounts give you reassurance or give you stress?” says Saundra Davis, founder and executive director at Sage Financial Solutions, a San Francisco Bay Area-based nonprofit. Davis has eight bank accounts, including personal and business checking accounts, a savings account for periodic expenses and a savings account for emergencies (commonly called an emergency fund). 

"How we manage our lives should be reflected in how we manage our money," she says. 

What’s the right type of bank for me?

This also depends, but you might not know all your options when choosing a bank. Let’s break down a few types of banking institutions.

Bank vs. credit union

Both offer similar accounts, but banks are for-profit businesses while credit unions are not-for-profit cooperatives that require membership based on geography or other factors. Banks, especially the biggest, tend to have more cutting-edge technology for online banking. But you might find lower fees and better rates on loans and savings, on average, at a credit union.

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Brick-and-mortar vs. online bank

A traditional or brick-and-mortar bank has a network of branches and ATMs plus in-person support to address urgent issues or to use specialty services, such as cashier’s checks or signing legal documents with a notary. While an online bank typically lacks locations and the accompanying services, it can provide far higher rates on savings accounts and fewer fees than a traditional bank.

Banking at a brokerage

A brokerage or investment firm can manage both banking and investing if you want that convenience. A firm’s bank account equivalent is often a cash management account that usually insures funds beyond the federal deposit insurance limit of $250,000 per account. This insurance enables you to get funds back if a bank goes bankrupt.

Combining types

You can have your money at more than one institution, and in fact, you might benefit from it. I have a traditional bank, the same one as my parents, but I have cash there mainly to pay credit card bills quickly. In 2015, I opened a high-yield savings account that offered a sign-up bonus, and later ended up liking the same bank’s checking account for its debit card with no foreign transaction fees.

I might switch to be fully online, but what if I need an in-person service I haven’t needed yet — such as cashing a check over my online bank's limit for mobile check deposit, or speaking with a bank's lending officer at a branch when applying for a future loan? Keeping both institutions gives me access to different perks and services.

What bank tools should I use?

Many banks offer features that may help with account management, including alerts to help you budget or detect fraud as well as automatic transfers to move some of your monthly income from checking to savings regularly.

An automatic transfer’s main pro is to automate your good decision to save regularly, says Brainard. “The only con is it reduces cash flow flexibility.” So make sure your checking balance is sufficient for paying monthly bills to avoid back-and-forth transfers.

While automatic transfers have their place, I've realized that the peer-to-peer payments system Zelle has a use case that my other transfer apps Venmo and Cash App don't. Since Zelle is embedded in many banks' apps, including both of my banks, I enrolled both of my Zelle accounts (one for each bank) and I've been able to send nearly instant transfers for free between them. This beats waiting the one to three business days that I used to do for these transfers.

As with similar apps like Venmo, though, Zelle's main risk is that you generally can’t cancel a transfer once it’s sent — even if you send funds to the wrong person.

Transaction alerts are another tool that can help you budget or detect fraud, and they’re sent as emails or text messages. Some common alerts include deposits or withdrawals above a certain amount, balances that drop below a set threshold, and upcoming payment reminders. I have credit card transaction alerts for nearly every purchase just in case I spot one I didn’t make.

When should I reevaluate my banking setup?

Dana Twight, certified financial planner and owner of the Seattle-based firm Twight Financial Education, recommends evaluating your banking setup every two to three years. When your income changes, your needs may change. 

Other reasons to switch banks or accounts may include:

  • Having a major life event. Getting married might mean opening joint accounts, and having or adopting a child can mean opening new accounts. Getting a mortgage or starting a business may lead you to a new bank or credit union with cheaper loans than your current bank.

  • A bank no longer meeting your needs. A bank might start charging fees on an account, or customer support isn't helping you resolve serious issues.

  • Wanting to support an institution based on your values. Some banks and credit unions, such as Black-owned or Hispanic American-owned banks, play crucial roles in their communities and advocate for social change.

"Banking with a Black-owned bank is important to me, but they don’t have the same backbone and infrastructure that a big bank has,” Davis says. “I know I pay a fee every month to sit my money there, and I do that because it matters to me."

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