More bank accounts, better money management? Not always

According to fresh market updates, There is nothing unusual around having more than one bank account. One may be used for salary, another for household expenses and a third for savings. The trouble starts when accounts keep getting further noted without a clear reason.

There is no RBI rule that says an individual can have only a certain number of savings accounts. You can have accounts with different banks, provided you meet the banks' requirements. The better question is whether each account has a job.

For a salaried person, two accounts may be enough. Salary, rent, EMIs, utility bills and everyday spending can go through the main account. A second account can be used for money that should not be touched for routine expenses, such as an emergency reserve or a scheduled annual payment.

This separation can make budgeting easier. If Rs. 50,000 comes into the salary account every month and Rs. 10,000 is moved to a separate savings account, there is less temptation to treat the full Rs. 50,000 as available spending money.

A third account can be useful in some cases. A person with freelance or business income may prefer to keep those transactions separate from personal expenses. Couples may additionally maintain a joint account for rent, school fees, groceries and other shared bills while retaining individual accounts.

But opening several accounts at the same bank does not give you several layers of deposit insurance.

The Deposit Insurance and Credit Guarantee Corporation, or DICGC, covers eligible deposits up to Rs. 5 lakh per depositor per bank. The limit includes both principal and interest. Deposits held in different branches of the same bank are generally further noted together when calculating the cover. Savings accounts, set deposits, current accounts and recurring deposits held in the same right and capacity are additionally aggregated.

Take someone who has Rs. 8 lakh with one bank. They could split it between four savings accounts or combine some of it into set deposits, but that does not turn Rs. 8 lakh into four separate Rs. 5 lakh insurance limits.

For someone holding a large amount of bank deposits, using different banks can as a result make a difference. The Rs. 5 lakh DICGC limit applies separately to eligible deposits held with each bank, subject to the applicable rules.

There is additionally a simple reason to keep a second bank relationship: access to money. If your main bank has a temporary technical problem, a second account with some funds can be useful for an urgent payment. The point is not to spread every indian rupee across five or six accounts, but to avoid depending entirely on one account.

Too many accounts can become a nuisance. Statements pile up, passwords and debit cards have to be tracked, and old standing instructions may continue running in the background. An account that is rarely used can additionally be forgotten until you need to update its details.

Before shutting an old account, check what is connected to it. Salary credits, SIPs, loan EMIs, insurance premiums, subscriptions and utility payments may all be linked to the account. Moving these first can save a lot of trouble later.

Nomination details should be checked as well. Keeping nominee information updated can make the process of settling an account easier for the family after the account holder's death.

For most people, there is no prize for having the largest number of bank accounts. One account for regular transactions and another for savings will cover many households. A third can be justified when there is a specific need, such as joint expenses or a separate source of income.

The useful test is simple: if you can explain why each account exists and keep track of what happens in it, the number is probably manageable. If you have to think twice around why an account is still open, it may be time to simplify.