Having One Bank Account Isn't Always The Wisest Option


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You can often greatly simplify your financial situation by combining accounts.Moving investments so that they are all with the same broker or financial institution can be tempting.

Consolidating insurance policies with one provider and moving all of your accounts to one bank can certainly reduce the number of institutions you need to deal with. Unfortunately, consolidation doesn’t always save you money.

One of the problems with consolidating is that you might choose to put all of your money in a less efficient place. Banks are rarely known for their competitive expense ratios on certain funds, and the yields brick-and-mortar banks pay on cash investments compared to online banks are often dismal.

Consolidating everything with a single servicer might not be your best course of action, especially if that single broker, banker, or money manager charges high fees. If you switch all your insurance to one company, and roll your IRA over to be managed by a company recommended by your agent, you might save on insurance payments. However, the funds you now invest in might come with sales loads and higher fees.

What about moving everything to one bank in order to simplify matters? Bringing everything over might result in waiving minimum balance fees, or a $9 monthly account fee. However, what yield are you getting on your cash accounts? Are you losing ground in that way? And, once again, you need to be wary of the other products that are often sold through banks.

Before you decide to combine all of your accounts so that only one entity is in charge of them, make sure that it is truly a good deal. In some cases, it makes sense to continue to work with two to four different brokers and financial institutions to make sure you are getting the best deal possible on all of your accounts.

When consolidating accounts, you might also run into a variety of limitations. Some accounts (particularly some of the more complicated annuities) can tie up your money in a way that makes it hard to access your money when you want it. It’s important to understand the account limitations that can come when you start consolidating and bundling. Often, these actions come with very specific consequences.

Another consideration is how protected your cash assets are. Your accounts are only protected up to a certain amount at FDIC and NCUA institutions. It’s important to understand this, since it could mean the loss of some of your capital if a financial institution fails. If you decide to combine multiple accounts at one institution, consider strategies, such as using different types of accounts and different designations on the accounts, in order to avoid being held to the $250,000 limit. A good financial planner can help you avoid these problems.

Also, don’t underestimate the power of proper understanding. While an independent insurance agent might be able to tell you all about life insurance and annuities, you might not feel as good about that person’s investment advice. If you want help with a wider variety of investments, a registered investment adviser might be a better fit. Think about what you are trying to accomplish, and ask yourself whether the person trying to get you to consolidate your accounts has your best interests in mind.

In fact, it’s important to remember that you probably have your best interests at heart better than anyone else. Before consolidating your accounts, consider consulting with a financial planner or adviser who has a fiduciary duty to you. This means that he or she is required by law to recommend a course of action that is best for you, rather than basing it on what provides better commissions.

With a little careful consideration, you can determine whether or not it really makes sense to consolidate your accounts. And you can see when it makes sense to keep things separated.

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