Managing personal finance can be a difficult task, especially when trying to juggle multiple financial accounts. Just remembering the user name and password for multiple sites can be a chore, much less learning each site’s user interface, remembering where your assets are located, setting up a system to automate investment contributions bill pay, etc.
There are great options for almost any kind of banking and/or investment service, but sometimes it’s better to go for the big wins and choose the 90% solution to simplify like and money management. With this in mind, you may find it easier to consolidate your financial accounts. Let’s take a look at some of the benefits of account consolidation.
Consolidating Financial Accounts
Benefits of Consolidating Bank Accounts
It is not uncommon to have multiple bank accounts. I primarily use USAA, but also have an online savings account with SmartyPig because they have the highest interest rates in the US at the moment (but don’t offer a full banking service so I can’t use them for everything), I have an ING Direct account which I use for many online transactions and as a bridge to my PayPal account, and since USAA doesn’t offer business account, I have a business checking account at a local bank and an online business savings account for higher interest. I have 3 personal savings accounts and 2 business accounts, which certainly isn’t simple, but is much better than before!
Why have multiple bank accounts? There are a few reasons to have multiple accounts – convenience of the branch location, high interest rates, low fees, free ATMs, free checking, and other banking features.
Why more isn’t always better. The problem with multiple accounts is that it spreads your money out and if you aren’t careful, you can lose track of your savings, bounce checks, get overdraft fees, etc. The likelihood of making financial mistakes or even tracking errors increases with each new account you add. So while it may seem like adding new accounts can make you more money, it may end of costing you money – especially if you manage your money with a spouse or partner because multiple accounts creates another barrier for communication.
Benefits of consolidating bank accounts. Fewer bank accounts are easier to monitor and can often result in higher interest rates, lower fees, and other perks. It also makes it easier to communicate with someone who helps you manage the finances, reduces the number of statements and tax forms you receive each year, and makes it easier, in general, to manage your finances.
Benefits of Consolidating Investment Accounts
Investment accounts are similar to bank accounts – there are many great brokerage accounts that offer different benefits – low trading fees, no management fees, ability to link directly to your bank account, etc. The problem, again, comes from being able to quickly and easily manage your money.
Here are some benefits of consolidating your brokerage and investment accounts:
- Ease of tracking investments. It is easier to track and manage your investments when they are in one location, as opposed to several. This makes it easier to track investment performance and perform asset allocation.
- Track changes. Investment firms may change their fee and commission structures, add new account features, offer free training seminars, or other changes. The fewer companies you have to remain up to date with, the easier.
- Special perks. The more money you have in your investment account, the more benefits you may receive from the investment firm. This can be in the form of lower fees or commissions, personalized investment advice or service, free trades, and other benefits.
Note about consolidating 401k plans and the Thrift Savings Plan: You may not be able to consolidate your 401k plan or Thrift Savings Plan if it is active, but you may be able to do so once you are no longer actively contributing to it. Here is some information about doing a 401k rollover into and IRA and options for your TSP when you leave the service.
Research your financial options, then decide on the best all around solution(s)
There is no one size fits all solution for either banking customers or investors, thought there are some companies that offer a 90% solution. Examine your banking needs, and try to reduce the number of banks you have down to the best 2 or 3 solutions (I understand the convenience of a local bank or the lure of higher interest payments!). But it is rare that you might need more than 2 or 3 personal bank accounts (business accounts are in a different category).
The same thing goes for investing. Examine your investing needs and habits and try to determine if one of your accounts will offer the best solution, or if you need multiple accounts. Many people can easily reduce their non-retirement investment accounts down to 1 or 2 investment firms, often a discount broker for cheap individual stock trades and a mutual house firm where you can buy low cost mutual funds. Here is a comparison between the two types of firms for a better understanding: best companies for an IRA. (The article was written about IRAs, but it applies to non-retirement accounts as well.
Take a few minutes to examine your options and find a solution. Managing your money is much easier once you consolidate your financial accounts!
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