When we are in college or just starting to work, there was barely any money for one bank account, let alone have multiple savings accounts. We see older adults owning debit and credit cards of different banks and we assume they must have fulfilled their financial goals and made some sound choices. Then, we grow up and realise that none of it defines our financial health.
One may have multiple savings accounts but have a maxed-out credit card and be struggling with EMIs. Now that we have been adults for a bit now, we know the awe with having many debit and credit cards was rather misplaced.
Having said that, some people open multiple savings accounts because it works for them. And then there are those who swear their patronage to one. Read on to know how millennials are banking and the pros and cons of having multiple bank accounts.
What millennials seek from their banking experience
According to a digital survey by Deloitte, millennials often worry about their financial health, as they struggle to choose between saving or spending money on the lifestyle they desire. Millennials don’t just use bank accounts for keeping their money, but they expect much more perks and benefits from them. Does your credit card get you airport lounge access? Does your bank have great offers on other platforms? Do you get cash back when you pay your bills? If not, millennials aren’t afraid to look for a bank that offers these benefits.
Sai Bhosale, a chartered accountant and financial advisor, explains, “Having multiple bank accounts is a matter of convenience for millennials. They want to carry out their banking transactions hassle-free. When millennials are dissatisfied with their banks, they are not afraid to try a different one.”
“Also, the economic downturn due to COVID-19 has led to business closures, layoffs and lower wages, poor job security, and low savings. Millennials have amplified their borrowings or credit facilities provided by banks. To avail more facilities, millennials may hold more than one bank account,” Bhosale points out.
How do people end up with multiple savings accounts?
Sometimes, people end up opening multiple bank accounts due to different reasons. For many, managing each of those can become difficult. But if done correctly and due to the right reasons, it may further their financial goals. “People may open multiple savings bank accounts for various reasons. One reason could be to assign a financial goal to each account and splitting your money into multiple goal-driven accounts. One account could be linked to a Demat account, one could be a salary account, one could be for repaying home loans taken, another to save for a child’s education, and so on,” Bhosale explains.
“Further, many people end up holding a new salary account each time they switch jobs. Also, opening a joint account with a parent or spouse could add to the number of savings bank accounts you hold,” Bhosale added.
Pros of having multiple savings accounts
Meeting Different Financial Goals: Having one bank account makes it difficult to streamline your financial goals. You will end up spending the amount you were supposed to save or invest. “You might decide to open one savings bank account to park your emergency fund, another in which you save to pay home loan instalments, and a third to save up for a short-term financial goal,” Bhosale advises.
To Avail Various Benefits Offered by Different Banks: Today’s consumer is not afraid to avail another bank’s services that offer more advantages. Bhosale points out that keeping your money in multiple banks can get you many perks such as competitive interest rates on fixed deposits, access to an extensive network of ATMs, and other lifestyle offers.
Easy ATM Cash Withdrawals: To avoid withdrawal charges and limits, it is better to have multiple bank accounts. When you can’t go to the bank for withdrawal of a higher amount, you can simply swipe your debit card of different accounts and fulfil your cash requirements.
For Joint Accounts and Single Holder Accounts: Many people have a joint account with their spouse for household and shared expenses. But that account need not have your entire earnings. “Opening a joint account with a parent or spouse gives access to some funds or savings to another person, while still having full control or access in another savings account which is solely held by you,” Bhosale explains.
Lessens The Impact of Bank Crises or Scams: “Reserve Bank of India curbs the activities of banks that face regulatory actions or investigations over alleged irregularities. One such example could be of Punjab and Maharashtra Co-operative Bank, which came to light in September 2019,” Bhosale reminds us. If there are limits imposed on withdrawals, having multiple savings accounts will ensure your money is not paralysed in one account amidst such a crisis.
Cons of having multiple savings accounts
Ineffective Use Of Funds: Having multiple savings accounts can result in inefficient use of funds as you will have to maintain a minimum balance in each of them. “The minimum balance maintained gets you nominal returns of three to four per cent per annum. This means locking in more funds that one could have invested in more rewarding investments like stocks, Mutual Funds, etc. Such investments could get you higher returns as compared to the interest rates of savings accounts,” Bhosale informs.
It Can Impact Your CIBIL Score: Having multiple savings accounts can be difficult to manage. It may also be difficult to track your expenses, leading to issues in maintaining the minimum balance required, settling dues, etc. “Even a single default or deficiency may lead to penalties or charges. This directly impacts your CIBIL rating/score. CIBIL score plays a critical role in the Loan Approval Process. The higher the score, the higher are your chances of loan approval,” Bhosale explains.
Heavy Paperwork For Tax Filing: “Collecting information and statements from multiple bank accounts for filing IT returns is a tedious job and ensuring analysis of each account makes it a costly affair,” Bhosale reminds us. More paperwork and data to process increases the probability of committing mistakes in accounting and return filing.
Susceptible To Cyber Crimes: if you haven’t used an account for a year, it becomes inactive and beyond two years, it is considered dormant. This means you cannot use it for any transactions. “To reactivate such accounts, one needs to submit an application to the bank and fulfil KYC (Know Your Customer) formalities,” Bhosale informs. “With the increasing use of the internet and mobile banking, cyber crime has been growing steadily over the years. Holding several accounts could leave some accounts unattended or dormant and thus making them a target for such cyber crime attacks,” she adds, explaining how a dormant account can be a security threat.
Also Read: 5 Reasons You Need An Emergency Fund And How To Build It
Also Read: Systematic Investment Plan (SIP) Guide For Beginners