The Fewer The Better

by Kevin on March 4, 2008

Finances can be complicated with the number of accounts that are involved. 401k, 403b, Roth IRA, Roth 401k, online savings accounts, CDs, taxable investment accounts, checking accounts… I could go on and on. That’s a lot of different things to keep up with. In my view, the fewer accounts you have — or at least the fewer financial institutions you are dealing with — the better. This is valid to a point; more on that later.

The smaller the list the more simple your life will be. All of our financial transactions are done online. The more accounts involved, the more logins and passwords we have to remember. It can really start to get daunting.

I wrote about What Accounts We Use in January. Here’s what we are currently dealing with: 1 paper checking account, 1 online checking account, 1 online savings account, 1 taxable investment account, and 1 (soon to be 2) Roth IRA accounts. Additionally, I have a 401k through work and my wife has a retirement plan as a teacher. Thankfully some of these overlap and reduce the number of logins I need to know.

Granted, multiple online savings accounts allows you to move the money to the bank with the highest return on your savings. I know some people out there have two or three different savings accounts for this. That’s all well and good, but to me it seems like a lot of hassle for a tiny bit extra return. Plus when it comes tax time, you’ll receive more forms from more banks. Too much hassle for me.

This is Only Valid to a Point

Let me stress that you shouldn’t be consolidating your accounts solely for the sake of simplicity. That can be a major mistake as you will be hard pressed to find one institution with a “one size fits all” program. Some diversity is healthy; don’t close accounts just “because”. Online savings accounts exist for a reason. You wouldn’t want to close all of them and give your money back to your brick and mortar bank that pays 0.02% interest just to get all of your money under one roof.

Here’s how you can effectively limit the number of accounts you have to deal with:

  • Understand your financial needs — You need to be able to see the whole picture of your finances before you start making any decisions. Figure out where all of your money is currently located.
  • Make choices where it makes sense — Pick the one online savings account with the highest interest or best customer service. You can leave the other accounts open with $1 (or the minimum required if it has one) to give yourself the option of switching back in a few months if you end up regretting your choice. After 6 months if you are still satisfied, drop the others. You can always go back.
  • Roll over old investment accounts — This is something Money magazine always harps on. People tend to move jobs and leave their 401ks behind. The funds sit without any investment direction, or worse, a direction that was correct ten years ago and is now way off base. Dumping all of these old accounts into a rollover IRA would gather all of the money in one location, with one investment direction. Obviously, that is much easier to manage.
  • Avoid fees — Financial institutions like to throw in little fees that nibble away at your money. They seem harmless alone, but can add up together. Make sure that when you close or rollover your accounts that you won’t incur any fees (or at least minimize what you do incur).
  • Don’t worry about it — If you go through this exercise and close just one old account, you’re making positive progress. As they say, Rome wasn’t built in a day. Make your system work for your personal preferences.

How many accounts are you currently wrangling with?

{ 1 comment }

Leigh March 4, 2008 at 7:42 pm

Gosh, I think we have 8 or more. Very confusing at times. I currently have all of my retirement accounts through Etrade and then the 401k through work which I can’t change.

I agree that the passwords and login names can be confusing. I wish I knew an easy solution. Some of our accounts are brick and mortar like our credit union. No password for that one!

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