Making Cents: Do you have too many accounts?
By: John P. Napolitano, CFP®, CPA, PFS, MST
Many people have too many financial accounts. It may be safe to say that older people are guiltier of this than younger people. This probably stems from their memories (experienced or perceived) of the great depression and bank failures and the FDIC rules that protect deposits up to specified amounts depending on the type of account you open.
For example, individual accounts receive protection up to $250,000 while joint accounts can get up to $500,000 of FDIC insurance. Trusts may have higher limits and that varies depending on how many beneficiaries of the trust exist.
Another reason so many accounts exist is rate shopping. For savers, not investors, chasing yield is more than a hobby. Savers live to find a higher rate on their guaranteed deposits with knowledge of the FDIC insurance limits also front of mind.
Some of you may be wondering, what is the big deal with having accounts spread out all over the place? Isn’t that a luxury problem that all should aspire to?
There are several possible downsides to this strategy of spreading your savings around.
The first may be that so many accounts complicate the estate settlement process upon the passing of the account holder. Held in an individual name, the probate process of getting these accounts to the right beneficiaries takes time and may be expensive. If the accounts are held jointly with another person or a child, there’s no probate but other issues may arise that can still complicate your estate settlement.
A joint account automatically passes to the joint account owner upon the death of one or more of the joint owners. This may be ok if you only have one beneficiary. But if you have 4 heirs supposed to get a share of the assets, only the joint holder gets the money regardless of what your will says. If you hope that your one child then follows through on your wishes and writes checks to the other beneficiaries, don’t hold your breath. First, they are not obligated to do so and second it may cause gift tax issues for the person passing the money to the other heirs.
The best answer for this multi-account holder is to consolidate these accounts into a living trust. A well drafted trust will avoid probate and distribute all assets owned by that trust however you want.
Another issue for the rate shopper with many accounts is that you may not be getting the best possible rate. Most banks will give you an interest rate higher than what is published for larger deposits. To get an answer from your bank, simply sit with the branch manager and ask if they have a higher rate for such accounts. The only catch is to watch the account. Sometimes these higher rates on larger deposits are teaser rates that only last for a specific period and then renew at their normal published rate.
John P. Napolitano CFP®, CPA is CEO of US Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation. US Wealth Management and LPL Financial do not provide legal advice or services.
John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.