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How many accounts does it take to keep your finances in order? For most of us, it's definitely more than one. But multiple checking accounts, two or three savings accounts, stray 401(k) funds from previous jobs and your hibernating crypto account may be overkill. Keeping track of financial accounts spread far and wide can be difficult. Consolidating them can help you get a full picture of your finances fast and help you manage your money more effectively going forward.
Here's how to take stock of your financial accounts and consolidate where needed.
How to Know It's Time to Consolidate Accounts
You won't receive official notification that your total number of accounts is high. Instead, consider these four signs that your finances are approaching peak complexity:
You Don't Know How Much Money You Have
Think fast: Approximately how much money do you have in all of your financial accounts combined? If you can't come up with an answer in five minutes or less (five seconds if you're using an up-to-date money app), you may need to pare down. In the digital age, it's not so much that your accounts are physically spread out; it's more that your attention may be spread too thin.
You Might Not Be Getting the Best Interest Rate or Return
Do you know how much interest you're making on every savings account? How are your investments performing—and how do your returns compare to industry benchmarks? While you don't want to move your money constantly to get slightly better earnings here and there, you should know generally where your returns stand and whether you could do significantly better elsewhere. Poor returns could be a sign of neglect.
You're Paying Fees on Duplicate Accounts
Many accounts aren't free. Checking and savings accounts may have monthly maintenance fees that can add up when you have multiple accounts at several financial institutions. Consolidating accounts—and financial institutions—can reduce the number of fees you're paying. You may also find it easier to earn rewards and other relationship perks, and maintain minimum balances with fewer accounts.
You've Lost Track of One (or More) Accounts
The classic example is the 401(k) you left behind three jobs ago. You suspect there's an account somewhere, but your employer closed up shop and you're not sure how to find the money. Losing money by literally losing money is never a good look. Tightening up the controls you have on your accounts could help you maintain critical oversight.
How to Consolidate Your Accounts
This process is helpful for anyone who's interested in consolidating accounts. Even if you don't complete step nine (moving your money), step one through step eight can help you clarify your holdings and think through the potential value of streamlining.
1. Make a List
List every financial account you have. This includes bank accounts such as checking, savings, certificates of deposit (CDs) and money markets; brokerage accounts and retirement accounts.
2. Find Your Essentials
Highlight the accounts you use or at least track regularly. Also note why you have each account. For example, you may have a brokerage checking account that refunds all ATM fees, even when you travel abroad. If you're a frequent traveler and your regular bank account doesn't offer this perk, you may consider that an essential account even if you don't use it every day.
3. Eliminate Dupes
You may need a joint checking account with your partner, a personal checking account and a business account for your side business. You probably don't need three personal checking accounts at three different banks. Maybe you created a deposit account for a specific goal you've reached, such as having a wedding or making a down payment on a house, and no longer need the account.
4. Look for Stragglers
Investment account with $43.58 in it, we're looking at you.
5. Find Opportunities to Combine Accounts
Group together accounts that might be combined—for example, a savings account at your childhood bank, another at your current bank and a checking account you don't use at an online bank.
Ask your 401(k) plan provider if you can roll funds from old 401(k)s and rollover IRAs into your current retirement account. Not all employers allow this, but many do. Alternatively, open a rollover IRA and use it to consolidate funds from past employers.
6. Consolidate Banks and Brokerages
There are pros and cons to banking at a single financial institution, and you may want to keep more than one. But the attention costs of banking at, say, five different banks may inevitably weigh you down. Could you keep your money at fewer financial institutions? Would doing so make your finances seem more manageable?
One important caveat: If you hold large sums in your bank checking and savings accounts, be sure not to exceed the maximum federally insured amount per account. The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 per account holder per account. If you and your spouse have a joint savings account at an FDIC-insured bank, for example, you're insured up to $500,000 on that account.
7. Consider Rates and Returns
While you're examining your accounts, consider interest rates, returns on investment and fees. Where you can, optimize your earnings and minimize your expenses. For example if you have a traditional savings account at one bank that is earning a dismal interest rate, consider moving that cash to your high-yield savings account that's earning more.
8. Finalize Your List
After eliminating unnecessary accounts, consolidating banks and brokerages, combining similar accounts and confirming the best rates and returns, review your final list of accounts and make any final adjustments. You should be happy with the remaining accounts and providers on your list.
9. Move Your Money
Transfer funds into the accounts you're planning to keep and close your old accounts. Be mindful: Zeroing out your account balance doesn't necessarily close an account. Confirm account closure protocols with each provider as you go so you don't end up with zombie accounts that are neither active nor closed. Left unattended, these zombie accounts could also be accruing fees the bank will someday look to collect.
Alternatives to Consolidating Your Accounts
What if you're not ready to consolidate your accounts, or you still have a lot of accounts to manage after consolidating?
Add an Account Check to Your Regular Routine
Make a master list of all your financial accounts and check on each one at least monthly. Review transactions in your checking account(s) for accuracy and potential fraud. Check the interest rate and returns you're making on savings or investment accounts. Follow up on any stray messages you've received. Keep a running total of your balances in a spreadsheet.
Use a Money Management App
Money management software can track all of your individual accounts and show you combined totals for debt, savings, investments and more. But a money management app can only keep tabs on multiple accounts if you add the accounts to your app. It sounds tedious, but it's worth the effort. If you aren't already using a money management app, you might consider it. The added computational power saves you time and makes your money much easier to manage.
The Bottom Line
If consolidating your accounts is part of a larger financial overhaul, you might also use this opportunity to update your budget, check your credit score and report for free from Experian, create strategies for saving and paying down debt, and shop for the best deals on credit cards and savings. Simplifying your finances can make it easier to know where your finances stand—and to seize opportunities to save and earn more going forward.