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The banking industry is going through profound changes, with young people questioning just about every standard practice.
In recent years, many new services have come to market—like investing apps and online banks that don’t have brick-and-mortar locations.
One question young people today often ask is whether it makes sense to put all your money in one bank, spread it around in different bank accounts, or do something else entirely.
Money belongs in the bank. Full stop.
However, it’s important to break this down a bit further. The last thing you want to do is put all your money into one financial institution or deposit account.
Assuming you have some money lying around, in an age of ridiculously low APY, you definitely don’t want to put every penny to your name in a single bank account.
Where should I put my money?
When it comes to deciding how to allocate your money, you’ll have a lot of options at your disposal. Here are some financial vehicles to consider.
- Bank accounts
- Certificate of deposit (CD)
- Money market account
- Investment accounts
- Personal safe
- Health Savings Accounts (HSA)
- Personal assets
- Real estate
Many financial consumers today use a combination of high-yield savings accounts that offer higher interest rates and traditional savings accounts that link to their checking account.
Traditional savings accounts come with much lower interest rates. That said, they are a bit more flexible than online savings accounts.
However, both online and traditional savings accounts are bound by Regulation D, which limits customers to six monthly withdrawals per billing cycle.
Savings accounts are great for emergency savings. At the end of the day, you need to save money and have at least a few months’ worth of cash set aside to cover any unforeseen expenses.
A checking account is the most flexible type of financial product, as it comes with debit card access and doesn’t have any federal withdrawal restrictions.
You should use a checking account for daily transactions like gas, food, groceries, and credit card bills, not for stockpiling cash for a long-term savings goal.
Certificate of deposit (CD)
CDs are like savings accounts except they lock you into a certain rate for a given term period. Use CDs if you’re concerned about plummeting interest rates.
Just remember: you won’t be able to access your money until the term is over. Otherwise, you’ll have to pay fees that could potentially offset your potential gains.
Money market account
Money market accounts are similar to checking and savings accounts except that they draw interest rates from money markets.
As such, they typically offer higher interest rates and come with debit card access. Just watch out for hefty minimum balance requirements and a monthly fee.
In addition to using traditional bank accounts, you should also consider putting money into investment accounts. That way, you can collect higher returns and ultimately achieve true financial freedom.
If you keep all your money in checking and savings, you’re not going to generate the type of returns you need to retire someday. It’s that simple.
While the money will be safe from tampering or fraud in a traditional bank, it won’t grow. If you want to earn extra money, you have to invest in securities, bonds, REITs, and other assets.
Brokerage accounts vs. retirement accounts
In order to invest, you’ll need to open an account with a brokerage firm.
Brokerage firms offer two types of products: individual brokerage accounts and tax-advantaged retirement accounts.
A brokerage account is a taxable account, meaning you’ll be taxed on capital gains and dividend distributions. However, you’ll have the freedom to liquidate your assets and access money when you need it.
On the other hand, a retirement account—like a traditional or Roth IRA—forces you to hold your money until you reach retirement age. If you withdraw it early, you’ll have to pay penalties.
With all this in mind, here’s a breakdown of where you can put your money in brokerage and retirement accounts.
When you buy individual stocks, you purchase shares of publicly traded companies. Stocks are risky, but they can potentially generate nice returns.
For example, you could invest in a recently IPO’d tech stock that could shoot to the moon over the next few years. Or, you could put money into a dividend aristocrat that might not offer the massive growth upside but will send you money each quarter.
Bonds are debt instruments. When you buy bonds from corporations and governments, you essentially loan them money with the expectation that you’ll be paid back in full with interest.
Generally speaking, bonds are one of the more conservative investment options. They deliver steady returns, but nothing that will make you rich overnight.
If you don’t want to buy individual stocks, you can buy baskets of securities through exchange-traded funds (ETFs), index funds, and mutual funds.
Investing in funds can provide access to a broad range of securities, reducing risk while potentially leading to steady growth over time.
Your personal safe
It’s a good idea to keep a certain amount of cash on hand to cover expenses and emergency situations.
The general rule is to have at least $1,000 on hand at all times, locked away in a secure location like a safe.
Keeping any more than $1,000 on hand could be risky. After all, the last thing you want is to have $10,000 in cash hidden away somewhere in your house only to lose it all in a fire.
Health Savings Accounts (HSA)
Healthcare is very expensive. An unexpected illness or hospital visit can cost thousands of dollars in treatment.
Those who have high-deductible savings accounts should consider opening an HSA, which enables you to deposit money for tax-friendly growth and investing.
HSAs can only be used for qualified medical expenses up until age 65. At that point, HSA funds can be spent on non-qualified expenses and are subject to regular income tax.
It’s also a good idea to keep some money in personal assets like fine art or jewelry—items that don’t depreciate in value but can be liquidated in the event you need cash.
If you put money into personal assets, consider insuring these items in case something happens to them.
Another area where you can put money is real estate.
For example, you may buy an investment property that can generate money over time.
If you don’t have enough cash to do that, you might be better off investing in real estate investment trusts (REITs), companies that manage real estate and are required to pay out 90% of their income in dividends to maintain their privileged tax status.
Real estate is generally considered one of the safest investments. Everyone needs a place to live and work, after all.
Why you should diversify your holdings
Here are some of the top reasons why you should spread your money around instead of sticking it in a single bank.
One of the perks of a bank or credit union is that they offer FDIC insurance and NCUA insurance respectively.
That means if something happens to your institution—like the bank or credit union goes under or there is a massive money heist—up to $250,000 of your money is protected.
If you have a lot of money, it can be risky to exceed the $250,000 insurance limit.
Most banks today offer interest rates that are too low to achieve solid growth. For example, some checking and savings accounts are now as low as 0.01%, which is abysmal.
The trick is to keep some amount of money in a checking account or savings account and put the rest in higher interest accounts that offer a better interest rate (more on this below).
By keeping all your money in checking and savings, you’ll barely gain enough interest to keep up with inflation. No matter how good your budgeting skills, inflation will eventually get the best of you.
Keeping all your money in one bank can be inconvenient and even risky at times.
That being the case, it’s better to have money in multiple accounts and in different assets. That way, you can access at least some of your funds whenever you need to.
Frequently Asked Questions
Is it a good idea to use one bank?
It all depends on your personal preferences and how much money you have.
Most people tend to start out with one financial institution and gradually expand as they move and bring in income over time.
For example, you may start with a checking or savings account through Bank of America and then add an investment account through Schwab or Fidelity.
Similarly, you might have a savings account with a bank in the town where you grew up and then open an account with Chase when you move to the city.
Are banks safe?
Up to $250,000 of the money you have in a bank is protected by the Federal Deposit Insurance Corporation (FDIC). That being the case, you shouldn’t be afraid about trusting a bank to hold your money, assuming it’s a legitimate institution with a solid reputation.
How can I avoid bank fees?
Unfortunately, fees are a part of banking. Many banks charge fees to store money or process certain transactions. Others even have minimum balance requirements.
Don’t have enough money to meet the threshold? That’s too bad! Now, we’re going to take even more of your money!
How awful is that?
You can avoid bank fees by being strategic about how much you keep in the bank and which banks you choose to trust with your money.
Shop around and find a bank that offers reasonable rates and maximum flexibility. Only you know which financial institution can meet your needs most effectively.
The Bottom Line
Putting all of your money in one bank account is generally not a good idea.
However, moving money around strategically and putting funds into multiple banks can be a solid personal finance strategy.
If you’re looking to achieve your financial goals, you need to get creative about financing. Put some money into checking and savings, some more money into investments, and keep some cash on hand to cover daily living expenses and emergencies.
It’s also a good idea to look into alternative investments—artwork, cryptocurrency, and real estate. The more you can diversify your investments, the better off you’ll be.
Of course, everyone’s financial situation is different. So you need to spend some time thinking about a strategy that meets your needs.
When you’re ready, take a proactive approach to your situation and make some major financial moves. It might be a tall order, but you’re in luck: Your future self is already thanking you.
Additional Disclosures: Millennial Money has partnered with CardRatings and creditcards.com for our coverage of credit card products. Millennial Money, CardRatings and creditcards.com may receive a commission from card issuers. This site does not include all financial companies or financial offers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.