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Having multiple bank accounts? How many do you really need?

Updated: Mar 21

The definition of convenience has evolved in the 21st century thanks to the internet. Ironically, the more convenient our life gets, the busier we have become. It is because we humans have a tendency to complicate the simplest of things. We focus on so much unnecessary clutter that we forget to view simplicity as it is. Take the case of online banking. One need not visit the bank nowadays for financial transactions or information. Everything is available at the click of a mouse. But still, managing multiple bank accounts could be a cumbersome task. Ask anyone how many bank accounts do they have and the common answer would be at least 2-3. Besides the salary account, the other accounts which people may usually have are a home loan account, any dormant salary account from previous employer, account attached to home loan, demat., etc. And how many would these be actively used? Barely one or two. Let us examine the pitfalls of having multiple bank accounts:

  1. Managing multiple accounts mean going through the maze of statements or passbook entries of all banks to track transactions. The more infrequent you look at them, the less you remember where your debit and credit of a transaction has come from. Not just that, remembering atm pins, internet log-ins, passwords of multiple bank accounts could be tough. Further, collating all TDS and interest income information at the time of filing tax returns would be a daunting task.

  2. The more accounts you have, higher is the probability of blocking huge funds unnecessarily in savings account. This could otherwise be channelized into productive investing.

  3. Many users continue with dormant accounts from previous employers and forget or ignore to change their personal details. There is a higher risk of internet frauds taking place in such accounts.

  4. Bank officials intentionally or otherwise levy charges which are not applicable to your account. It becomes increasingly difficult to coordinate with them to get the charges reversed later.

Having multiple accounts can thus be a big drain on time, energy and money. So how many bank accounts should you really have? While there is no thumb rule, limiting the number to around 2-3 accounts would be financially prudent. The practical approach most people adopt is paying their living expenses, monthly bills, EMI payments, insurance premium, etc. from the salary account. However, in the event of change of job, it can cause inconvenience with the change of salary account and may lead to cheques getting bounced.

It is thus prudent to have just one dedicated bank account in addition to the salary account. The latter will be your temporary account in which you can maintain minimum balance. You can use the dedicated account for payment of your household expenses, utility bills, EMI payments, insurance premium and investments. You can transfer a fixed sum every month into this dedicated account to maintain sufficient balance for all payments.

To conclude, it is best to have two, at the most three bank accounts. It would be far easy to regularly track them and channelize funds efficiently for various purposes. So consolidate your bank accounts and simplify your financial life!

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