How many savings accounts should I have to maximize my savings?

Savings accounts are a great way to put money aside for upcoming needs. And having multiple savings accounts can help you dedicate accounts to specific goals. As you implement your savings plan, you might wonder: How many savings accounts should I have? This article will help steer you through that decision.

There’s no one-size-fits-all answer to how many savings accounts you should have—it all depends on how they help you reach your financial goals. The key is using them strategically to manage your money effectively.

Start by understanding why having multiple savings accounts can be beneficial. Different financial goals come with different timelines—saving for a car next year isn’t the same as investing for retirement decades from now. By assigning each goal its own account, you can choose the best account type to help you reach it efficiently.

Start by separating your financial goals using the bucket approach. This method places your savings intentions and cash-flow needs on a timeline:

• Short-term goals. You plan to achieve these targets, such as buying a car or splurging on a summer vacation, in the next year or so.
• Mid-term goals. These are goals you want to accomplish in roughly three to seven years—things like making a down payment on a house.
• Long-term goals. The most common long-term goal is retirement, but these goals can be anything that requires saving for a decade or more, such as sending your kids to college or making a legacy-defining charitable donation.

Having a dedicated account for each goal or category may inspire you to follow through on your goals, as well as allow you to easily monitor your progress and know whether you're on track.

If you're going to have different savings accounts for each of your goals, it's essential to understand your options and how they work. Then you can choose the best type of account for each goal and get the most value possible.

Here are common types of accounts to consider when putting together your savings strategy:

• High-yield savings accounts. High-yield savings accounts typically pay much higher interest rates than standard savings accounts and tend to have much higher minimum balances. These accounts won't lock up your money like a CD—you can make withdrawals and transfers within the limits set by the institution—but they generally won't offer direct spending capability like a money market account.

• Money market accounts. A bit like a hybrid between checking and savings accounts, money market accounts earn competitive interest rates. Sometimes they have transaction limits and minimum balances, so they're often best for holding a chunk of money that you want to be able to access easily but relatively infrequently.

• Certificates of deposit (CDs). CDs offer less flexibility but higher interest than regular savings accounts. They mature at a specific time, and you may have to pay a penalty if you withdraw your money early. A CD is usually best for money you know you likely won't need until the maturity date.

Beyond helping you assign timelines for your goals, maintaining more than one savings account can bring other advantages:

• More interest-earning opportunities. When you have a variety of accounts that work in different ways to meet your needs, you can spread your money in a way that optimizes its growth. As interest rates fluctuate across different products, you can take part of your traditional savings and put it into a CD for a few months to take advantage of a good rate.

• Progress tracking and automation. Instead of having a general savings balance, different accounts let you see how close you are to achieving each goal. This can be psychologically rewarding and help you stick to your plans. Many financial institutions have budgeting and savings tools to help you monitor your progress or even automate it.

Segmenting your goals into dedicated accounts can make it easier to prioritize them. As you're budgeting, you can decide which accounts you want to put more or less into. Several accounts also can help prevent a setback in one area from affecting all your goals. For instance, having an adequate emergency fund to cover a new set of tires can keep you from dipping into the savings you've set aside for buying a house.

The three types of spending are needs, wants and wishes:

• Needs spending includes housing, utilities and food.
• Wants spending covers money spent on eating out, activities and travel.
• Wishes are money spent on big-ticket desires, like a new car, larger house or vacation home.

Dedicating a financial goal to each savings account can help you better live within your means and set money aside for the future. Living within your means ensures your spending and saving are equal to your income. It can also mean you delay a large purchase until you have enough money to pay for it.

If you have been overspending, setting specific financial goals—maybe putting aside $500 a month for the next three years for a house down payment—can help you track progress and adjust as you go.

If you hold more than one account, be aware of and maximize the interest rates and rewards offered by your bank(s). For example, a high-yield account or CD might be a good choice for savings you plan to deposit and not withdraw for months or even years, maybe for a home down payment. Some banks offer cash awards or other perks for opening a new account. Shop around for available offers before you open a second account.

Savings accounts held at FDIC-member institutions benefit from federal government protection against loss due to the failure of the bank. Your money is insured up to $250,000 per person, per ownership category, per institution.

If you hold money in a credit union, your account is protected by the National Credit Union Administration, or NCUA. It also offers protection up to $250,000 per person, per ownership category, per institution.

If you have considerable savings, you can insure more than the $250,000 limit by opening accounts at more than one bank.

Having several savings accounts brings benefits, but there are also potential downsides to keep in mind:

• Interest rates. Financial institutions usually only offer their highest interest rates on accounts with large balances. Spreading your money around multiple accounts may keep you from landing the best rates.
• Fees. Savings accounts can have various fees, from monthly maintenance fees to excess or early withdrawal fees to dormant account fees. These charges can add up if you aren't carefully watching all your accounts.
• Minimum balances. Holding multiple accounts that require you to maintain a certain amount of money in order to avoid fees can be challenging. You might feel like you can't take out any money for fear of dipping below the required balance. You may be better off having large bundles in a smaller number of accounts.
• Access and convenience. Multiple accounts may feel like a lot of legwork (or brainwork) to maintain. The more accounts you have, the harder it may be to keep tabs on them—or you could dedicate specific accounts and allocate them to specific goals.

Organization and monitoring are the keys to savings management. Automating your deposits also helps make it easier to juggle more than one account.

Avoid confusion and keep your savings on track with these strategies:

• Account nicknames. Many banks allow you to assign nicknames to different accounts. For example, if you hold two savings accounts at the same bank, naming one "everyday expenses" and the other "house down payment" can help you remember which is which.

• Regular reviews. Set a schedule to check each account and make sure the balance is appropriate for your goal and timeline. Regularly reviewing your accounts can help you determine whether you have enough money on hand to meet everyday expenses and whether you are making progress toward your goals. If one account is outpacing or lagging, consider moving money between accounts to maintain your desired mix.

Through your employer, you may be able to have your paycheck directly deposited into different savings accounts, helping you automatically put away money toward categories like everyday expenses and longer-term goals.

To stay organized, consider using an app to link your accounts so your data is in one place. Some budgeting apps let you transfer money among your savings accounts. These apps can also help you track your savings progress or create "buckets" for different financial goals within a single savings account.

It can be a challenge to shape a financial strategy that includes multiple savings accounts—you need to consider your goals and timeline, along with your capacity and desire to manage more than one account or bank. Speaking with a local Thrivent financial advisor can clarify how each account can help you reach your goals.