While transitioning to a new (online) bank is it OK to have my money split between two banks?

Question

I used to keep all my money with one bank. I recently opened an account with another bank and have slowly been transitioning towards them. I have multiple jobs and sources of income. Now when someone asks for my banking information, I give them the new bank or I deposit checks in the new bank. I still have a larger checking and savings account in my original bank, I haven't transferred any money between the two.

The new bank is an online bank and has no/lower fees. Also their interest rate is a lot higher. The original bank is traditional, established and has lots of branches. I'd like to keep it because it's easier to withdraw and deposit cash (and coins you have to see a teller).

What are the benefits and drawbacks to having accounts with different banks? Is it good or bad to have my wealth split between two banks? Is there anything I should keep in mind? For example, with my old bank I don't pay service charges if I keep above a certain amount in my account, so I shouldn't just transfer everything to the new account.

Answer 1

Many people split their banking across different platforms for all sorts of reasons and there is nothing wrong in doing so.

For example, I live in France but pension income is derived from the UK. I therefore have UK banking accounts (which is useful for transferring money to family and friend in the UK) and a traditional "bricks and mortar" bank in France (very necessary in France for paying utility bills). I also use a Fintech account for currency conversion between GBP and EUR - this account is used (amongst other reasons) to transfer EUR to my French bank account.

So, there is no straight answer to your question other than what is right for you in your jurisdiction but in essence, if maintaining a balance in your old bank reduces your charges and you are content with the service they provide, you might consider there is no need for change but adding other accounts with specific reasons in mind is no bad thing either.

Answer 2

AFAIK, CDIC insurance is up to $100,000 for each of seven categories so if you have more than that amount, you should have multiple accounts.

Secondary factors to consider might be bank rates, availability and quality of online banking platform, fees charged, virtual credit cards, or any other perks the financial institution might offer.

I think that it's a good idea to have at least two banks because 'stuff' happens. If it's online banking, if there's a glitch at one, you'll have access at the other.

Answer 3

It's totally fine to have multiple accounts. As you mentioned, different banks have different advantages, and lots of people keep multiple accounts to make use of those various advantages. Here are some additional aspects to keep in mind:

• If you are an employee and you receive your compensation through direct deposit, it is also generally no problem to supply two accounts (or three, etc.) to have your net pay deposited into. You could have a set amount go to a savings account, and the remainder go to your main checking account (same bank/different banks doesn't matter).

• If your balances rise above the CDIC insurance amount (currently at $100,000), then it is good to have a second bank relationship for additional funds.

https://www.cdic.ca/what-happens-in-a-failure/reimbursement-of-insured-deposits/

It's unlikely that it would ever come into play with all the safeguards in the system, but that amount is a fiduciary consideration.

• You may be able to transfer amounts between your different banks, online for instance, for further convenience.

Answer 4

I consider having a second bank account to be a necessity. In the UK (and probably most other countries) banks can and do freeze accounts due to money laundering regulations which require them to take such action if they even merely suspect criminal activity (regardless of actual innocence). Once started, this process can take months to resolve and the bank is not even permitted to tell you what is happening. The media and courts are full of such stories which in the worst cases can cause severe financial hardship and even bankruptcy. Try to picture how you would survive the next few days/weeks/months if you had only one bank account and it was suddenly frozen without notice.

I work in the legal profession and recently took on such a case. A well known high street bank had suddenly closed the person's account and refused to refund the balance. It took around 9 months and a county court claim to recover the money. We never discovered the reason but suspected it was because during a random "know your customer" interview the account holder had refused to answer a question they found too personal. During my legal research I found other cases where the reason had simply been a transaction that looked unusual and triggered a bank employee to become suspicious.

Although such occurrences are fairly rare, the consequences if it happens are severe. Keeping a second bank account and splitting your money between them is a simple and effective solution and (in the UK) without cost.

Answer 5

I like to split money between banks for redundancy, convenience and behaviour conditioning reasons.

Once when on holiday I dropped a card and it fell through the cracks into the sea, next card was eaten by the ATM and bank was unable to give it back to me for security reasons and I was given text message from Barclays about my last remaining card being destined to be cancelled within a week due to security reasons. So I had to withdraw all my money and carry it around with me, not that fun.

Additionally different banks also have various exchange rate deals when abroad and there's also possibilities of temporary money laundering freezes or system outages. Though I never really use the overdraft should I need it I can get larger liquidity or shop around interest rates.

Because of the above issues as well psychological and convenience reasons I like to spread money around. To minimise spending and time spend on management after salary I move money around to various accounts of different purposes:

• main account were salaries get paid and reside in after paying off credit cards and stashing money in other accounts including savings, used for "luxury" purchases
• account for estimated weekly spendings which gets automatically topped up every week from the main account, if I drain the allowance early I physically need to use the main account card and as such get an indicator that my spending is excessive
• an account for outgoing recurring bills only, I don't cary the card so won't have to update all the details if lost or stolen
• two spare ones just sitting about that I could use for travel (bank accounts are free in UK)

Answer 6

Having multiple accounts with different banks is perfectly fine and probably a good idea (as detailed in other answers). However, there are a few things to watch out for that are more likely to happen if you have multiple banks:

1. Account closed due to inactivity. This usually refers to no activity over several years time-span, but you do have to make sure you have regular activity in both accounts.
2. Unnoticed account fees or charges/need to make sure you keep monitoring the old account. For example, if your bank waives some fees if you have more than a minimum balance, but you have your income going to your new bank and are still making some payments from your old bank, then eventually you'll dip below the minimum balance and start getting fees -- and you may not notice that quickly if you're not monitoring that account. So you need to make sure you know the rules for your old account and also pay attention to it at least somewhat.