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Welcome to This Week on Reddit, our weekly series that answers redditors’ biggest banking questions. Each week, our editors choose an interesting and relevant user question to examine. Read on for our expert analysis.
High-yield savings accounts (HYSAs) are a popular option for those who want to keep their savings separate from their everyday spending money and earn above-average interest rates on the balance.
Right now, the national average savings account rate is 0.41%, according to the FDIC. However, many banks and credit unions are currently offering much higher rates — as much as 4% APY or more in some cases.
In today’s uncertain economic landscape, earning as much as possible on your savings balance is key. But are there any benefits to having more than one high-yield savings account? That’s what one redditor wants to know.
Read more: How much money should you keep in a high-yield savings account?
Reddit user Ok-Evening3695 asked the following question:
Some users noted that with more than one bank account comes a bit more administrative work at tax time because you would receive multiple 1099s to report interest income on your return.
Even so, there are a few benefits to having more than one HYSA. One user who goes by the name of Chongman99 noted that by putting money in accounts at different banks, you can increase your FDIC coverage. Additionally, it helps hedge against any issues you might have when accessing your funds, like delays or problems transferring money. Plus, different banks come with unique pros and cons.
That said, there are some potential drawbacks to consider. “Every new bank has some hidden glitches. Wait times and lag for transfer in and out. Often heightened fraud controls for the first 30 days or so,” Chongman99 wrote.
Additionally, user dbsanyone explained that Wealthfront’s interest rate would likely decrease in the future, which is always a possibility with variable-rate accounts. “WF will go down to 4% once the referral bonus wears off,” they wrote. “I think it could make sense to bounce the money to the highest current HYSA.”
The overall consensus from commenters seemed to be that there’s no harm in the original poster transferring all of their savings into one account, but there may be instances when it could make sense to keep both.
Read more: How to avoid taxes on savings account interest
As other redditors pointed out, savings account rates are subject to change. Just because a savings account has a high rate today doesn’t mean that will be the case weeks or months from now. That’s because savings account rates are variable, meaning they can go up or down at the bank’s discretion.
Read more: How do banks set their savings account interest rates?
In today’s falling interest rate environment, choosing a high-yield savings account with a competitive rate ensures you’re earning as much as possible on your money. If your savings is currently sitting in a low-interest account, opening a new HYSA allows you to earn a higher return and hedge against inflation.
But don’t expect that high interest rate to last forever. Financial institutions have been decreasing their rates in line with the Federal Reserve’s rate cuts. So, what is considered a good savings account rate today may not be the same tomorrow.
In other words, chasing the highest savings rates and opening multiple HYSAs may not be worth the trouble.
Still, having more than one high-yield savings account can make sense, depending on your financial situation. For example, if you have more than $250,000 in savings, you’d exceed federal insurance coverage limits at any single financial institution. By spreading your money across different banks or credit unions, you ensure your money is protected in the rare instance one of those institutions fails.
Additionally, some financial institutions offer the highest rate up to a certain balance, and funds over that threshold earn a lower rate. In that case, having your savings spread out across multiple accounts can be one way to make sure every dollar is earning as much interest as possible.
Another consideration is any new account bonus you may qualify for. Many banks and credit unions offer a one-time bonus when you open an account as a way to attract new business. Earning a bank bonus can be a smart way to reach your savings goals faster.
Read more: 16 new bank account promotions: Earn up to $3,000
However, these incentives often come with special requirements that must be met to qualify for and keep that bonus. It’s important to read the fine print and weigh your account options to determine if a particular account is a good fit on top of any bonus.
The decision to have one or multiple savings accounts is personal and, ultimately, depends on several factors unique to you and your finances. When deciding where to park your money, consider how much you plan to keep on deposit, what kinds of features and perks are offered, potential fees, and whether you’re comfortable managing more than one account.
See our picks for the 10 best high-yield savings accounts today>>