A Tale of Two Savings Strategies


A few years back I had an epiphany about savings accounts.  I realized, rather suddenly, that my ability to save did not in any way hinge on how many savings accounts I had. I share my story in the hopes of preventing others from doing the valueless, tedious work I was doing before my revelation.

Pre-Epiphany

Back in my early days of YNABing, I had several savings accounts set up at what was ING Direct (now Capital One 360).  I had savings accounts for everything including but not limited to an emergency fund, car repairs, new car, vacation, new computer, house maintenance… you get the idea.

When I got paid, I would dutifully transfer money from my checking account to the appropriate savings accounts  Then I would go over to the budget and make sure my savings categories all matched up with my savings accounts.  If there was $435.19 in the new computer account, I made sure there was a balance of $435.19  in the new computer category.

If I spent money from one of these categories, I’d move it back to the account where the spending was happening, and then record the outflow.  “Oops!  I’m spending $57.69 on house maintenance – better move $57.69 back to checking!”  I was constantly moving money between accounts and making sure things in the budget lined up.

And what was my reward for this work?  Interest!

piggy bank copy

At the end of each month, I would sit down and gloriously reconcile each savings account to add in all the huge amounts of interest I had earned. Ah, the fruits of my labor! It usually looked something like this:

  • Emergency Fund – $1.37
  • Car Repairs – $.85
  • New Car – $.72
  • Vacation – $1.03
  • Computer – $.35
  • House Maintenance – $.61

$4.93 total!  Then I would jump over to the budget and add the appropriate amount to each category.But here’s the thing, here’s the kicker:  I wasn’t saving more as a result of all this work.  It was valueless work.  In fact, if anything, I was less focused on savings and more focused on account management.

I finally realized one day while laboring through my reconciliation task, that the budget was already keeping track of what the money was doing.  I was essentially duplicating that work in accounts.  All I was creating was more work.

Remember, the budget doesn’t care about location of the money and the accounts don’t care about the job of the money.  They each play completely different roles

Post-Epiphany

So,  I closed all my savings accounts except for one, because my money does earn a little more in a savings account.  I stopped worrying about location.  I started focusing on the jobs of each of my dollars.  And — wouldn’t you know it — my category balances grew.

With my focus on categories, it was easy to see, “Hey, there’s $14 left in restaurants that I didn’t spend this month.  Hmm, I’ll move that to my vacation category.”  Done.  No transfers, no money shuffling, no reconciling.  Just simple reprioritization and more money for my vacation.

Less work, better results? I’ll take it.

If I need to spend $57.69 on home maintenance, I just…spend it.  As long as there’s money in the category, I’m good.

I keep some money in savings, and a healthy there’s-enough-in-here-so-I-don’t-need-to-worry balance in my checking account.  Once or twice a year, I’ll look at my checking balance and get a feeling that there’s either too much in there or not enough and I’ll move some money accordingly.  How do I know when there’s too much or not enough? I don’t know exactly.  It’s certainly not scientific, I’ll tell you that.  It’s sort of a gut feeling of what I’m comfortable with — and it is different for everyone.  But it is incredibly liberating to not have to worry about account balances.

I think a lot of people, much like my former self, use multiple savings accounts as a savings strategy.  I’ve been trying to figure out why that is such a common response. I think there are a couple reasons why:

You put money in a savings account to protect the money from yourself.

You’re afraid, if your checking account balance is too big, you’ll spend more. But the only way that will happen is if you are looking at the checking account balance when making decisions.  Check your category balances instead, and you’ll only be spending according to plan.

You put money in savings to earn interest.

Sure, that’s fine.  But my money is still earning interest, just in one account instead of eight.   And honestly, maybe it’s worth doing the math and calculating how much interest you’re earning.  Check out this math:

  •  Savings Balance: $500
  • Annual Interest Rate: .75%
  • Regular Monthly Deposit: $50

For a whopping total of $6.21. Is the amount you’re earning worth the time you’re spending managing it?  Are you spending hours and hours to earn $26.58 a year across all those accounts?  Does the simplicity of one account outweigh the $26.58?  Let’s say you spend, conservatively, 30 minutes a month doing what I was doing before (moving money, adjusting things, etc).  So, that’ $26.58 divided by 6 hours over the course of the year.  An hourly wage of $4.44.  You could earn more delivering pizzas!

You have multiple savings accounts for specific goals.

Just hand this over to the budget.  You’re putting the budget in a corner and not letting it shine.  Let it do its job! Trust the budget!

It goes without saying, that you are the best person to decide what’s best for your financial life.  But if you are managing multiple savings accounts, I want to challenge some of your assumptions. Ask yourself:

  1. Is this account doing a job that the budget should be (or already is) doing?
  2. How is this account benefiting me?
  3. Is this account making my life easier and better? Or is it creating valueless, tedious work?

Money management can be as simple or as complicated as we want it to be.  Choose simple.  You won’t regret it.