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One Big Savings Account or Lots of Little Ones?

I have a bunch of savings accounts all earmarked for different things.

I have my emergency fund for actual we-can’t-put food-on-the-table emergencies.  Then we have our cushion fund to smooth out our irregular income.  There is also a savings account where we make car payments to ourselves to save up for new cars.  And a savings account where we put income from the rental to pay for maintenance as needed.  Oh, then there is an account for vacations.  And one for each of the kids.


Why?  I normally like to keep things simple and having so many accounts to keep track of sure isn’t simple.  It would be easier to just have one account to pool all our savings and just pull out as needed.  Yes, it would be easier, but would it be better?

The reason I’m a fan of having separate savings accounts is because it keeps the individual balances lower.  It’s a psychological thing.  If I pulled up the account balance and saw that I had, say $50,000 in savings (for example), that would make me feel pretty good.  I might in fact decide that it would be ok to splurge a little on vacation this year. Or maybe get a bigger cable package (update: we cut the cable!), or more lavish cell phone plan (Update #2: We’re switching to Republic Wireless!).   No matter what that fat account balance would do to me, it wouldn’t motivate me to save more.  I know myself.  I’d see all those zeros and feel pretty set. I’d forget all the things that money is supposed to provide.  It’s supposed to provide for my family if my husband loses his job.  It’s supposed to buy me two new cars and take us on vacation.  It’s supposed to cover all the expenses for the rental property.

So instead I break it up into lots of smaller accounts.  Now when I pull up my savings accounts I don’t see one big balance, I see lots of little balances.  None of which are big enough to provide what they are supposed to provide.  Eeek… that’s not enough to buy a new car, I need to save more!  Yipes… that’s not enough to cover us if my husband loses his job, I need to save more!  Oh… that’s not enough for a vacation, I’d better tuck away a little more.

You see?  Little balances motivate savings in a way that big balances do not.

How do you handle your savings?

12 thoughts on “One Big Savings Account or Lots of Little Ones?”

  1. That is actually a neat psychological trick! I do that too, to know at a glance which account needs more attention. I direct new money accordingly. (And the fact that if you leave a savings account untouched for a long time, the bank closes it and hands the money over to the state!) 🙂

  2. I like smaller accounts because it’s just easier to see what I have saved for each particular thing. My goal is to eventually take a small amount out of my paycheck to fund each individual thing (rent, utilities, travel, etc), but I just haven’t gotten that sophisticated yet.

  3. I also like smaller accounts. It’s easier for me to mentally “separate” them by having them separate. If it was all in one account, I might get too comfortable. 😉

  4. I think just having 1 savings account will be enough. But I guess that depends on how many ‘smaller savings accounts’ you actually have? If I had 5+ savings accounts, it would make me go nuts! I think if you have a monthly/year goal on how much you want to save, that will be enough.

  5. Hunter - Financially Consumed

    I generally keep accounts purpose specific, and have lots of them. You can play a trick on yourself by setting up sub-accounts on a spread sheet or PF software…I suppose that’s cheating.

  6. I personally use a bunch of savings accounts because it does keep money separated per subject that it’s supposed to be use for. And the amount of savings accounts shouldn’t matter if you use some sort of check book or app to manage your money and expenses as you should.

  7. Maldivian Finance Blog

    This is one of my top priority goal for this year. Open two more accounts. One for Incidental/Emergency and one for Vacation.

    Last year we went for a vacation using our saving account and it is not a good feeling to see that your actual saving account is drained after a good vacation.

    Great post btw. thanks

  8. Scott at BudgetAce

    it’s a tricky one isn’t it…
    I personally like the idea of having multiple savings accounts for individual savings goals. But I don’t think its really suitable if you’ve got loads of debt specifically if those debts are spread across several credit cards, you’ll just get confused and think that you’ve got more money than you actually have.

    You have to remember that a credit card will always cost you more in interest (by a long way) than you will earn from a savings account. So the golden rule is if you’ve got debts (particularly high interest debts like credit cards) focus on them first… If you can manage that, then when you’ve paid them off, having multiple savings accounts should be a breeze!!!

  9. John | Married (with Debt)

    We use Smartypig, an online savings accoun that gives you subaccounts, each with separate balances. Each month it automatically withdraws from checking and puts it in the appropriate accounts/goals.

    This is a good way to “set it and forget it” as Ron Popeil would say.

  10. I have one big account but I am also a budget tracking freak. I created a spreadsheet to track monthly expenses(utilities, food, gas, loans, etc) and I also track savings. On this spreadsheet I add the accumulated amount for each item and this determines how much we have to spend on certain items like the occasional dining out, gifts, vacations, entertainment. This way I we can maximize the interest(as little as it may be). My plan is to accumulate a year and a halfs worth of savings for each bucket, as I call it, and then dump a full year of it into investments. Eventually I hope to be living off of the interest but until I finish paying off debt that wont be until further down the road.

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