One Bank or Multiple Banks – Which Is Better?

Concentrating accounts at the same bank or splitting them up at different banks can affect your maintenance fees, savings accounts, and CD rates. Here are the pros & cons of when to keep all your money in one bank.
By Richard Barrington

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multiple-piggy-banksPeople tend to treat their banking relationships like a good marriage — they stick with it for a long time and are faithful to one partner. But banking is a business relationship, not a marriage. It should be treated strictly based on how well it meets your needs in terms of cost-effectiveness and convenience.

There are some legitimate reasons to keep your money at one bank, but there are also reasons to consider depositing your money at more than one bank. Understand the advantages of each arrangement to help you choose which situation is best for you.

Advantages of having one bank

Here are some of the advantages of concentrating your bank accounts at the same institution:

  1. Convenience
    While this is an obvious plus for customers who still like to visit a physical bank branch regularly, it can also be more convenient to deal with the same institution even if you have made the switch to online banking. After all, most people would welcome having one less password to worry about, and having to navigate just one banking site or mobile app while being able to see all your accounts on one screen can make life much easier.
  2. Easier to meet minimums and qualify for monthly fee waivers
    On average, it takes a deposit of about $100 to open a checking account and an average balance of more than $12,000 to qualify for a monthly fee waiver.

    Fortunately, some banks do consider balances in related accounts when determining whether you qualify for a fee waiver. Since most banks these days charge a monthly maintenance fee and these fees come to an average of nearly $163 a year, qualifying for a fee waiver is a big deal unless you can find a free checking account.

  3. Automatic balance transfers for overdraft protection
    Another advantage of having your savings and checking accounts at the same bank is that some banks allow free, automatic transfers between accounts to cover potential overdrafts. With overdraft fees averaging $32.53 per occurrence, this feature could save you a lot of money if you are prone to overdrafts.
  4. Avoid transfer fees
    Besides automatic transfer features, having money at the same institution generally makes it easier to move money between accounts. Transfers between checking and savings accounts can help you meet regular savings goals and manage your budget. Certain transfers between banks, like wire transfers, generally incur a fee which creates a disincentive to switch money between accounts at different institutions. Even if there is no fee, it may take a few days for money to be transferred from another bank.

Advantages of having multiple banks

On the other side of the argument, here are some advantages of working with multiple banks:

  1. Ability to evaluate checking and savings accounts separately
    Checking and savings accounts have different features and thus should be evaluated separately. With a checking account, minimizing fees, bill-pay features and ATM locations may be key criteria, while choosing a savings account should be primarily about the rate you get. If a bank shines on one type of account but is less competitive with the other type, why should your choice of each account be linked?
  2. Freedom to choose the best CD rates
    Again, rates are the key feature of savings accounts, and this is especially true of CDs. After all, certificates of deposit are very low-maintenance accounts since they are locked into a specified term without any transactions. So, there is little benefit to having a CD and a checking account at the same institution and, therefore, there is little reason not to pursue the best CD rates no matter where you find them.
  3. Potentially easier to make future changes
    Coordinating the timing of payments when closing an account is one of the things that makes changing banks a bit of a nuisance. If you already have an account at a second bank that you can use for transition purposes, it can make you less tied down to your other bank. That means you might not hesitate to pursue lower fees and better savings account rates.
  4. Broader FDIC coverage
    If you have a large amount of total deposits, spreading it among multiple banks can help you stay under the $250,000 FDIC deposit limit. Remember, this limit applies per depositor at each institution; so even if you have multiple accounts under the same name at one bank, they will be limited to $250,000 in FDIC coverage in total.

The right fit for smaller and larger deposits

Especially if you don’t have a lot of money to keep in the bank, you may benefit from keeping your accounts at the same bank. This can help you qualify for fee waivers and take advantage of automated transfers to avoid overdrafts. Also, with a lower balance, there is less to be gained from shopping for higher savings or CD rates at another institution.

However, things change as your total amount available for deposit grows. At larger deposit amounts, it becomes easier to split your money between multiple banks and still qualify for fee waivers and other special deals. It also becomes easier to maintain a cushion in the checking account to avoid overdrafts. Meanwhile, larger savings account or CD balances benefit more from the ability to shop freely for rates.

So, at perhaps around the $10,000 level in total deposits, it may be worth starting to think about working with more than one bank. Certainly, once you start to approach the $250,000 FDIC deposit insurance limit, it is high time to think about splitting your deposits between different banks.

Frequently Asked Questions

Q: What are the pros and cons of linking checking and savings accounts?

A: This is an excellent question, because it seems to come up in so many different contexts. It is relevant to both how people shop for checking and savings accounts and how they manage their money from day to day.

Here’s a look at the pros and cons:

Benefits of linking checking and savings accounts

Here are three potential benefits of linking your checking and savings accounts at one bank:

  1. Convenience. Whether you still make trips to your local bank or manage your accounts electronically, coordinating multiple accounts is generally easier when they are within one institution.
  2. Bargaining power. Banks often offer special deals to customers based on how much they have on deposit, so having two accounts at one bank can help you meet the threshold amounts to qualify for these deals. This can make it easier to get free checking or earn you a higher interest rate on your savings.
  3. Overdraft protection. Banks offer various forms of overdraft protection, but one of the most practical is an arrangement to automatically transfer money from savings if you overdraw your checking account.

Drawbacks of linking checking and savings accounts

On the other hand, here are three potential drawbacks of tying your checking and savings accounts together:

  1. Coordinating FDIC insurance coverage. The $250,000 limit on FDIC insurance coverage applies to the total of all accounts an individual has with one bank. Admittedly, this is only an issue for larger customers, but if your deposit amounts are getting up there, you need to coordinate your account balances to make sure you don’t exceed the insurance limit.
  2. Independent shopping. You have more options if you are free to choose your checking and savings accounts independently of one another. You may find the best accounts in each category are at different banks.
  3. Overdraft protection. How can overdraft protection be on both the list of pros and the list of cons? Because making it too easy to access savings via your checking account can chip away at your savings account over time. If you find your overdraft protection kicking in regularly, you might be better off with a more rigid arrangement that forces you to develop better banking habits.

There is enough to be said on both sides of this issue that there is no universal, one-size-fits-all answer. To decide what answer is right for you, weigh the above pros and cons in the context of your needs, your banking habits and the availability of banking products in your area.

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Richard Barrington