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Account Consolidation – When Less is More

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I’m a bit of a personal finance junkie. I have a habit of opening too many new financial accounts. The reasons are usually justified at the time I opened the account – a great teaser rate on a new savings account, a signup bonus for a brokerage account, or a credit card with a cash bonus or rewards points, etc. If you play your cards right, you can easily bring in several hundred dollars per year or more in these bonuses. Depending on the nature of the sign up bonus, you could bring in well over a thousand dollars in cash and other perks. But all of that comes with a price: disorganized finances.

The older and busier I become, the more I value simplicity. I want fewer accounts, and fewer hassles. Slowly but surely, I’ve been chipping away at the ledger, and consolidating my financial accounts. There are actually quite a few benefits to consolidating financial accounts, and I recommend that everyone consider reducing some of their accounts if possible. (For those of you who are curious, here is a list of accounts we currently use).

Benefits of Consolidating Financial Accounts

consolidate financial accounts

Consolidating your accounts gives you more freedom.

Simplicity. As the old saying goes, sometimes less is more. This is true with your finances as well. Instead of dealing with half a dozen statements in the mail each month, you can deal with one or two. Few accounts also means fewer payments, deadlines, and tax statements. Something to think about this time of year!

Easier to Track. Account consolidation is helpful even if you use an account aggregator such as Mint.com, Personal Capital, or some of the other online tools for managing your money. Instead of looking at line after line of numbers, and mentally adding everything up, you can look at two or three lines. It gives you a much clearer picture of where everything is, and where it is going. This is especially important as your accounts grow larger.

Reduces your risk. Identity theft is a beast. So is fraud. Having multiple accounts doesn’t necessarily make it easier for you to become a victim of identity theft, but it does reduce your ability to catch it quickly unless you take the time to actively monitor each account on a regular basis. Yes, there are other steps you can take, such as putting a credit freeze on your name, shredding all your documents, switching to paperless and using a double authentication login for your email, etc. But reducing your total number of accounts can also be an important step toward reducing your risk profile.

Fewer fees. I’m a big believer in not paying fees to financial companies. The only exceptions I make are for investment management fees (which are unavoidable, but can be mitigated by using low cost index funds), and for certain credit cards that have an annual fee. I used to be a staunch believer that there was no need to pay an annual credit card fee until I ran into a deal I couldn’t pass up (6% cash back on groceries, 3% on gas).

Account fees were easy to avoid a few years ago. Unfortunately, banks and other financial institutions are having a more difficult time making a profit, so they have been increasing fees for their users. If you aren’t careful, you might find that you get caught in the squeeze. Many of these fees are avoidable with a little work on your end, but it can be difficult to keep track of the requirements for each account in a fluid environment. Reducing your number of accounts makes it easy to worry less about inactivity fees, low balance fees, and the dreaded “charge you for being a customer fee.”

Don’t Close all Your Accounts!

I don’t mean to suggest that you should only have one financial account for each basic activity (banking, investing, credit card, etc.). In fact, I think there are great reasons to have more than one account. The most important reason is to have a backup in case your account is locked out or compromised. It wasn’t until my credit card number was stolen that I realized I didn’t have a backup credit card. That could have been disastrous if this had happened while I was traveling, or needed quick access to my funds and didn’t have enough in my checking account. So by all means, keep an extra credit card handy, or just store it in your sock drawer for emergencies. (Closing credit cards can also decrease your credit score; keep this in mind before consolidating your credit card acounts).

Speaking of emergencies, it’s also a good idea to have an emergency fund that is separate from your main checking or savings accounts so you don’t get tempted to use the money for regular expenses, and so you can have a backup, just in case. So I have a backup savings accounts as well.

How to Start

I can’t tell you there is a firm number to how many accounts you should have. Each situation is unique. But in many cases, fewer is better. My recommendation is to sit down, grab a pen and paper, and map out your finances. Once you have a list of accounts and how you are using them, you can determine which of your accounts are necessary, and which are redundant. You may find that you can shutter a few accounts and simplify your life. Here are some tips to get started.


Published or updated January 31, 2013.
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{ 3 comments… read them below or add one }

1 ChubblyWubbly

I agree completely.

My husband and I have savings accounts at two different banks and 3 different credit cards, visa, mastercard, and amex. Having only 5 accounts makes it much easier to pay bills on time and tracking expenses.

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2 S. B.

You are really making me feel guilty. :-) I’ve done a lot of things right with my finances, but consolidating accounts is not one of them. I totally agree with the advantages of doing that. I just totally hate the paperwork hassle of closing accounts. Thanks for the reminder to get moving on this. I’ve got way too many accounts and definitely need to simplify things.

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3 Ryan Guina

I put this off for way too long as well. But it got to be too much to deal with, so I just started closing accounts. It’s a relief, actually!

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