Combine and Simplify Your Accounts to Save Time, Money, and Headache

Combine and Simplify Your Accounts to Save Time, Money, and Headache

Over time, many of us become account collectors. You have that old checking account at the bank by your parent’s house. The checking account you use now, and maybe the old one you never closed. Over the last 10 years you collected three 401(k) accounts as you moved jobs, and opened a couple of investment accounts of your own.

This is way too much account clutter. Here are some reasons and tips to help you consolidate your accounts down to only the ones you actually need and use.

Account Overload

I was once told to leave $5 in a checking account “just to keep it open” when I moved to a new bank. It turns out, that was pretty bad advice. While some people may be proud that they are an account holder for 20+ years with their local bank, they are probably losing money and convenience from that institution.

There is no reason to keep old accounts or not move to the best ones available for your needs. More accounts mean more paperwork, more statements, more confusion, and more opportunity for identity theft.

Cash Accounts You Need

There is no reason to have more than three cash accounts at any given time, and that is in a more complicated setup. Here is how my accounts are setup, and what I suggest.

Online Checking

Online checking is free, easy, and has better interest rates than brick and mortar accounts. I went “online only” with my banking. I have found that the benefits of online banking are huge and brick and mortar banks are nearly obsolete.

Online Savings

While online checking accounts can earn competitive savings rates, online savings accounts earn more and keep your money separated for a rainy day. I use mine for an emergency fund and my liberty fund.

Credit Union Checking

I have only found one obstacle to online only banking that I have yet to overcome. I can’t deposit cash. I can go to free ATMs, direct deposit my pay, deposit checks with my phone, write checks, use bill pay, and transfer money without a bank. But I can’t deposit cash.

For cash deposits, I use a local credit union that has no fees or costs for keeping a checking account. I have that linked to my online bank and can transfer money between the two if needed for free.

Investment Accounts You Need

Current Employer 401(k)

This is most people’s first investment account and first retirement account. Make sure you are taking full advantage of your company’s 401(k) matching, and maybe put a bit more if you can. However, when deciding between a 401(k) or Roth IRA, I suggest maxing out the Roth first.

Rollover/Contributory IRA

If you have ever left a job at a big company, chances are you have an old 401(k) account with a relatively small balance and high fees. That’s not a good deal for you, so rollover your 401(k) to an IRA account. Schwab took care of this for me, I just had to fill out a few forms. Make sure you rollover correctly so you don’t have to pay any tax penalties.

Roth IRA

A Roth IRA is a tax advantaged out with benefits that specifically help young people. This year was the first year I was able to max out my Roth IRA investment, and I am already on track to do it again this year.

A Roth IRA is a special account where you put your money in after taxes, but all of your capital gains can be withdrawn for a first time home purchase or in retirement without any taxes.

Individual Investment Account

Of all investment accounts, this one is the least important, but if you want to buy individual stocks or invest for any time before your retire, this is the way to do it. I have my individual investment account at Charles Schwab and it has been a great experience for me. ShareBuilder is a popular service for new investors.

Credit/Loan Accounts You May Need

Home/Car Loans

At some point in our lives, many of us will have a mortgage. I have a mortgage myself. That is a normal kind of loan that I put in the “good debt” category. If you have a mortgage with reasonable terms that you can afford, that is not a problem.

While we would ideally be able to buy a car with cash every time, it doesn’t always work that way. I have had a car loan, but I paid it off already. If you can’t avoid it, and can afford it, you may need a car loan too.

Student Loans

I rank student loans in the “sometimes unavoidable” category with car loans. If you can get through school without them, that is the best situation. If you get stuck with them, make sure it is for a degree that will allow you to pay them off. (Think public schools and business/engineering degrees)

I paid off my student loans two years after graduating, and I don’t have to keep track of my student loans anymore!

Main Credit Card

I suggest that most people use a credit card for the vast majority of their purchases. You can get free flights and great rewards if you use the right credit card. Right now, my main credit card is the Chase Sapphire Preferred.

Backup Credit Card

Sometimes things go wrong with credit cards. The number is lost or stolen, it doesn’t swipe right. Whatever it is, it is good to have a backup just in case. For now, my primary backup with the Starwood Rewards card from American Express.

Old Credit Cards – If No Annual Fee

One of the factors in having a high credit score is your average age of open credit. Opening and closing cards hurts your score, so it is best to keep them as long as possible, as long as you don’t have to pay an annual fee. I have a handful of old cards at home in a drawer (I use them each about twice a year to keep them active) for this reason.

That’s It!

That might seem like a lot, but many people have a ton of open accounts. Having more cash accounts is a pain the ass. Having more credit or loan accounts could be costing you a lot of money. Having investment accounts that you are not focused on can cost you in fees and lost investment gains.

For my accounts, I like the KISS rule. Keep it simple stupid!

Keep Track of It All with Personal Capital

We are clearly in a new generation of online banking. We don’t just log in to check our balances, we use our phones and internet connections in place of the bank.

To keep it all straight, I use a free tool called Personal Capital. Personal Capital is a free and easy way to keep all of your accounts straight. I use it to track my account balances, transactions, and fees in one place. Just last month it saved me $150 in annual mutual fund fees that I had no idea about!

I also use the free tool Manilla as my virtual filing cabinet to keep my statements all in one place with easy access.

What Accounts Do You Have?

Do you have any more accounts than I have listed here? How do you manage them? Do you have plans to consolidate to make your life easier? Please share in the comments.

Image from striatic / flickr

Comments

  1. says

    I have about the same accounts as you. I do have a regular checking account that allows me to visit the branch, but I also have some online checking and savings accounts that both earn interest. Thanks for breaking it down so well.

  2. Emily @ evolvingPF says

    We have some zombie checking accounts from before we were married because each of us is reluctant to sever relationships with those banking institutions (though we did add each other to the accounts to make them joint). We literally haven’t touched the small balances left in those accounts for years and yet haven’t closed them! I don’t see any reason to have more checking accounts than just our joint one with Ally, but maybe we will start a relationship with a credit union once we settle down.

    I think the rest of our accounts are fairly functional. We only work with Vanguard for our investments and retirement so everything is in one place. We probably have too many credit cards now, but each has its (possibly rare) use.

    • says

      You always seem to have your stuff in order Emily. Great choice on Vanguard too!

      If I were you, I would just close those old “zombie accounts” and look forward rather than backward. No reason to worry about extra statements and small balances if you will not use the accounts again. Banks are always happy to have new customers, so there is nothing lost if you decide to go back.

  3. Jules@Fat Guy,Skinny Wallet says

    We just closed my old account from when I was single. That was 4 years ago! Anyways..it feels good to have one bank now. I use Mint to keep track of everything!

  4. Kylie Ofiu says

    I just closed a few old accounts. I am getting divorced and the accounts were attached to the bank we had our mortgage with. He is buying me out, so it is pointless to keep those accounts. Without the mortgage I would be charged fees on those accounts. So easy to forget about things like that though.

    Other than that, I have a pretty similar list to you.

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