Pros and Cons of Having Multiple Savings Accounts

Bank accounts come with lots of features as their offerings are continually evolving to draw new clients while maintaining the present ones. A savings account's primary aim is to link its customers to banking and enable them to keep their money safe and also gain some interest. Many banks have savings accounts with distinctive characteristics that enable individuals to open several savings accounts with different banks to benefit from the advantages of each account.

Having several bank accounts has both pros and cons. This article explores both disadvantages and advantages to enable you in making an informed financial choice.

Advantages of holding several bank accounts
You can choose multiple types of savings accounts with specific features, depending on your requirements. Few banks, for instance, offer a higher interest rate on their savings accounts, which makes them a decent alternative compared to less liquid fixed deposits whose dividends are entirely taxable.

• Most banks sell premium debit cards with exclusive features such as higher cash withdrawal, zero transaction charges, rapid accumulation of loyalty points, exclusive cashback on qualifying purchases, and also perks such as free airport lounge service. In a single savings account, you do not get all sorts of services, but if you are searching for different features, it may be helpful for you to have multiple savings accounts in different banks. Banks often restrict the frequency of withdrawal of cash and the daily withdrawal limit on a debit card. So, if you have multiple bank accounts, if the withdrawal cap on a single card is exhausted, you can still use another bank's debit card.
• More specifically, by getting several bank accounts, you can segregate your savings for various financial purposes. For starters, in one account, you can hold your emergency fund, and you can use other accounts to collect funds for your various savings, daily expenses, etc. You should also have a particular account to manage a fund for all your essential EMIs, such as repayments of home and car loans. Distributing out your savings would mean that money held for a single reason is not used to finance another obligation which will help you reach all your goals in a disciplined way.
• Another main advantage of multiple bank accounts is that you can invest in numerous banks in FDs while keeping the sum of FD below ₹ 1 lakh. Every depositor in a bank is covered against the liquidation or revocation of a bank's license by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India, for up to ₹ 1 lakh in principal and interest. So you can guarantee the protection of your funds by holding several bank accounts and FDs with various banks.

Cons of holding different bank accounts
Most bank account variants require a certain minimum balance to be retained to avoid penalty except for few zero balance accounts. So if you intend to have several bank accounts, according to their specifications, you will need to hold the minimum balance of each account, making it a substantial overall sum that will sit illiquid and idle in those accounts.

• It can also be difficult to handle many bank accounts. There are chances that you may sometimes forget the login IDs and passwords if you are using a net banking or smartphone application for each account. People also make the mistake of writing down their login credentials to prevent misunderstanding, which, in essence, raises the chance of hacking.
• The services with bank accounts also have some related expenses. High-end debit cards, for instance, typically bear an annual price. So if you keep many bank accounts, you have to pay out a large sum of fees.
• When filing Income Tax Returns, the most daunting aspect of managing several bank accounts is experienced. In all your accounts, if you forget to mention income data, it could contribute to a discrepancy in your tax returns.

What should be the approach, then?
There is no "one-size-fits-all" solution for this query. A long-standing relationship with your preferred bank would mean that you get the best loan and credit card deals from that bank while keeping multiple bank accounts can work in your favor to take benefit from a wide range of features. So, you do not want to have too many accounts in different banks if you're happy with the number of services provided by a bank. It will also make it simpler during the ITR reporting season to record the financials. You can get several bank accounts if you are aiming for more versatility, a wider variety of facilities, and don't mind keeping the minimum balance.

Conclusion: Many find that doing so allows them to successfully achieve all their financial objectives. So, once you have taken into account the related costs and other relevant factors, make a pragmatic decision based on your financial requirements.

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