You may not need all those financial accounts. Here's where to put your money

How many financial accounts do you really need? With the proliferation of online banking and investment apps, it’s almost effortless to pick up a new account and end up with money all over the place — until you can hardly keep track of it.

On top of that, financial advice suggests you build an emergency fund and use savings funds to keep track of all of your financial goals. And you’re bombarded with updates about the latest rates on certificates of deposit (CDs) and high-yield savings accounts (HYSAs). How do you manage any of this without becoming overwhelmed by having money scattered all over?

"It's really just very personal as far as what works [for you]," said financial planner Maura Madden. She starts planning with her clients by asking: "What is the purpose of this money?"

Madden said it can be helpful to think of money as living in a set of "buckets," with each bucket having a distinct purpose: to spend, save for an upcoming purchase or event, save for retirement or to grow your wealth, for example.

Knowing the purpose of each bucket can help you decide what kind of account is best to hold it. Once you know the accounts you need, you can determine the right institutions to work with.

Common types of financial accounts

Here’s what you should know about these common financial accounts:

• Checking accounts let you spend the money using a debit card, bank transfers and checks. They typically offer little or no interest and are intended to hold spending money.
• Savings and high-yield savings accounts (HYSAs) are bank accounts to deposit money that’s held for future spending. The average savings account interest rate is less than 1%, while a high-yield savings account might offer interest between 2% and 5%.
• Certificates of deposit (CDs) are available through a bank or brokerage institution and offer a fixed interest rate for a set period. Their purpose is to grow your money without the risk of putting it into the stock market. You can’t easily access funds once they’re deposited, so these accounts are best for long-term savings.
• Money market accounts invest in cash instruments (rather than the stock market). These offer similar rates as a HYSA, but rates fluctuate day-by-day. You can withdraw cash without penalty, but you’ll face a day or two waiting period. This can be an alternative place to hold emergency and short-term savings if you can get a better rate than in an HYSA.
• Retirement accounts are tax-advantaged investment accounts. Your money is invested for you the stock market, and you can’t withdraw from these accounts without penalties until you turn 59 1/2. Your initial investment isn’t protected (like it is in the above accounts), so your balance can go up or down with the market over the years.
• Brokerage accounts are taxable investment accounts that let you invest money in stocks, bonds and other vehicles. You can withdraw without penalty, but these vehicles are meant for long-term growth, so they’re best for long-term savings to supplement your retirement accounts (if you intend to save more than the annual limits).

Online banking apps usually offer checking and savings accounts that operate just like those at a brick-and-mortar institution, but might not provide checks or let you deposit cash. Investing apps offer brokerage accounts and sometimes individual retirement accounts (IRAs) and facilitate individual stock picks, which most experts advise against for the average saver.

How to set up your accounts

"I’m all about the simplicity," Madden said. She recommends using fewer accounts whenever possible and keeping your accounts generally with the same one or two institutions. For example, if you already have a checking account at one bank and want to open another for your bills and savings accounts for various financial goals, look at your options with that same bank first. The simplicity of managing money all through one account login and seeing your information on one statement might outweigh the benefits of any minor differences in interest rates.

She did concede, though, that she usually recommends opening money market accounts and CDs through a brokerage rather than through a credit union, even if you already have a checking and savings account at a credit union. In this case, the rate differences are usually significant enough to justify the additional administration. If you already use a brokerage for investing, start there.

Although money management apps can link to a bank account and help you visualize your money "buckets" without putting it in separate accounts, Madden recommends the latter.

"Having the different accounts…can be a little easier and clearer, because what you're seeing online and at the bank is the same as you're seeing in any apps you have," she said. "There's less room for error or just personal interpretation [that can mislead you about your available funds]."

Here’s an example of how you might set up your accounts:

Bank or credit union:

• One or two checking accounts for bills and day-to-day spending, what Madden called “revolving money.”
• HYSA (if available) for future purchases (what I call “big spending”), like travel, holidays or a new car.

Note: Some online banks (which are more likely to offer a HYSA) only let you open a single checking and a single savings account, but allow you to sort each account into visual buckets for more granular management of your goals.

Brokerage:

• Traditional and/or Roth IRA (if you’re saving beyond the limit of a workplace retirement account or don’t have access to one).
• Money market account for your emergency fund.
• CDs for long-term investments.
• Taxable investment account for savings beyond retirement limits.

Typically, a brokerage is the place you’ll go when have extra funds and you’re ready to optimize your money (i.e. "make your money work for you").

If you’re just trying to get your money in order and stay on top of day-to-day expenses, a bank or credit union probably has everything you need. Start with a checking account, an emergency savings account and a savings account for any extra you’re able to set aside for big spending.

If you have more money, contribute to a workplace retirement account if one is available or open an IRA with your bank or a brokerage. If you have funds beyond that, a financial planner can help you determine the most advantageous way to organize them among other accounts to meet your short- and long-term goals.