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Over time, many people accumulate multiple bank, investment and other financial accounts. While that’s often a natural byproduct of financial success, whittling down the number of accounts you have can offer several benefits.
Knowing What You Have
You’ll likely spend less time tracking and reconciling your financial activities (and be less tempted to put off these tasks) if you keep it simple. And, staying up to date on your personal recordkeeping should, in turn, give you a better handle on your finances, allowing you to make more-informed saving and spending decisions.
A recent study at the University of Kansas found that people tend to save more when they work with a single bank account. The reason? Hanging onto multiple accounts can make it more difficult to know exactly how much you have in total. If you have only a vague idea of your financial status, you might overestimate what you have and more easily rationalize spending what you otherwise might find difficult to justify.
Managing fewer accounts also can reduce the risk that you’ll bounce checks or incur overdraft fees simply because you mistook the balance available in one checking account for that in another. You also may see a reduction in fees.
Consolidating investment accounts not only may help you gain a better handle on just how your money is invested, but also can help ensure that your overall portfolio aligns with your financial goals. In addition, consolidating accounts with fewer financial advisors may make it easier to keep them interested in your financial well-being.
The Consolidation Process
Once you’ve decided to reduce the number of financial accounts you hold, you must identify which ones to close and which ones to keep open. Typically, the ones that remain should have lower fees and/or better returns and service.
Before closing any accounts, halt any automatic payments or deposits. This will allow you to direct them to the accounts you’re maintaining. Keep in mind that this process can take weeks. Moreover, don’t overlook any automated transactions, because some banks may reopen closed accounts if they later receive an automatic deposit or withdrawal. Also destroy any checks or debit cards and close any lines of credit or features (such as overdraft protection) tied to the accounts you’re closing.
Last, inform financial institutions holding the accounts that you’re closing them, and ask to receive any moneys that remain. Obtaining a letter from the institution stating that the account is closed can help clear up any disputes that may occur.
Limits to Consolidation
While reducing the number of accounts you have to a reasonable number often makes sense, don’t overdo it. For instance, if consolidating several bank accounts into one means that your balance will exceed the amount insured by the Federal Deposit Insurance Corporation (FDIC) — generally, $250,000 per depositor, per insured bank, for each account ownership category — maintaining more than one account might be the prudent course of action.
And, when different investment accounts will go to different beneficiaries, it may be best to keep them separate. That way, the investment objectives of each can be tailored to the particular beneficiary.
And, last, if you have a business, you should maintain separate business and personal accounts.
Take a Comprehensive Look
Even when it makes sense to maintain multiple accounts, be sure to regularly take a comprehensive look at them. You may want to harness the power of your financial advisor. He or she can provide an accurate, thorough view of your total balances and suggest ways to determine how your funds are saved and spent. That can boost your ability to make smart financial decisions.