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Did you know that you can have multiple savings accounts? Many
people here the acronym FDIC and think that this insurance locks
you into one account or at least bank. The truth is that each person
is federal insured up to $100,000 per financial institution. For
example, let say you (individually) have $30,000 CD, a $50,000 CD,
a $25,000 savings account, and a $5,000 checking account all with
the same bank. $10,000 of those holdings is uninsured by the FDIC.
Totally you have $110,000 with that institution. You should look
to move $10,000 of that money to another institution.
If you have too much liquid money, you must diverse your use of
banks, this is the only absolute. Of course, if you had that much
money, I would say go for mid to long range investments instead.
Let's face it; the scenario of having too much money does not hit
most if any of us. So, why should you move your money between multiple
banks:
1. It makes you feel like you have less money and it curbs
spending.
Imagine you had $10,000 in a savings account or what if you had
twenty $500 savings accounts. If you had the $500 accounts, would
you buy that $1,000 item? I know this is a ridiculous example, but
if you are an impulsive spending freak like me, you will appreciate
this example. It's also the reason I have not made a large unplanned
purchase in the last 4 years.
2. It helps you develop accounts for specific purposes.
I had 2 piggy banks when I was little, now I have 7 actively used
savings accounts. I also hold accounts in over 20 online banks,
but they are under $50, if that. Each account has a specific purpose.
One is for my personal nuisance fund, what I would call in college
"Beer Money". One for maintenance, one for home improvement, one
for entertainment, one for emergencies, and of course one for general
savings.
3. Allows you to take full advantage of new rate trends.
There is a recent online savings account battle going on right
now. I see the top dogs battling every couple of weeks. If you want
to get the most for your money, you cannot constantly keep switching
banks. You will lose more interest than you could ever gain, just
by waiting on the holding and transfer periods to complete. During
those periods of time you do not gain interest. You would be better
off keeping your money in a lower interest account, than continually
switching to a slightly better interest rate.
To benefit from the rate battle, I open small accounts in the top
ten banks. When I have a good sized deposit to make, say $1,000
or more, I will put it in the account that has had a steadily high
and fairly constant rate. Make sure not to fall for promotions.
Over the years, I have seen a ton of promotions where the rate drops
close to 50% after the promotional period. Look for a good steady
performer.
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