Account Proliferation Or Consolidation?

Having multiple bank, credit card, dividend reinvestment, mutual fund , or stock brokerage accounts does have benefits. Generally, different banks and credit cards offer better interest rates at various times. In addition, multiple dividend reinvestment or brokerage accounts can reduce the cost of investing. The upside is that multiple accounts can help improve one's financial situation if managed well. The downside is the maintenance that comes with multiple accounts, specifically the handling of paperwork which needs to be done on a monthly or yearly basis. In addition, many financial accounts require reconciliation when doing one's taxes.

Consolidation simplifies the maintenance work by reducing the number of accounts that require one's involvement. The fewer accounts one has, the fewer statements one has to handle, either monthly or for filing taxes. However, one may miss out on getting the best financial deal by not using multiple providers.

During my twenties and thirties, I enjoyed opening new accounts to get the best deals. I would have bank accounts at multiple banks to get better CD rates, even if the difference was only 0.1%. I had up to three brokerage accounts since each one had better costs or service in different investment areas. I would carry multiple credit cards since there were great new account deals. It was fun to create a few extra few dollar through this process.

However, as we've gotten older, I began to appreciate the benefits of consolidating accounts, even at the expense of getting the best deal. Our first consolidation was to purchase mutual funds and CDs via our brokerage accounts. Doing so gave us access to the excellent funds and rates with the convenience of only one account statement. We also consciously reduced to one credit card for each person. At one point, we had consolidated to one bank, two brokerages and two credit cards to handle all of our financial transactions. This seemed like a reasonable number minimum accounts to protect against an institution failure and a credit rating for each spouse.

For a couple of reasons, we are currently one above our desired minimum in each account area. However, it still makes sense to keep consolidating and we continue working towards the desired minimum number of accounts. It will likely take a couple years in order to minimize the fees of closing accounts.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial advice. Please consult a professional advisor.

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