How many bank accounts do you think I need?

muchacho

I'm self employed and currently bank with HSBA, Santander and Lloyds.

Lloyds: Where my income goes
Santander: Where my direct debits are such as Mobile Phone, Car insurance etc
HSBC: Currently not using it for anything

What I'd like is to have it organised so that when I get paid, I can:

1) spread say 20% to a savings account (for end of year tax)
2) pay X amount to cover direct debits for upcoming month
3) put X amount in a Cash ISA
4) have a spending account (whatever is left is what I have to spend during the next month)
5) have a business account where all business expenses are taken out of this account

I'm just wondering how many banks you think I need? I don't use HSBC online, so thinking thats the best one to use for the 20% for tax, as I'd be less likely to want to touch it

grumbler

Generally, you need no more than 2 current accounts and certainly no more than you have already got. Yes, one of your current accounts has to be a business account as you are supposed not to use a personal account extensively for business.

I think it's obvious that you need a cash ISA to put money in it and, possibly, a separate saving account for the tax if it's a big amount and you don't want to lose a part of your cash ISA allowance by taking money from your cash ISA.

That said, it's some current accounts, not saving accounts, that pay the highest interest rate now:

• Best Bank Accounts
• Top Savings Accounts

And you can get even higher interest rate by using a regular savings account: Regular Savings Accounts Earn up to 6% on your savings

InsideInsurance

So you say you want 3 current accounts:
1) Bills
2) Spending
3) Business

1 & 2 could be combined into one but if you struggle to manage your money you can split it out.

As to the number of banks you need, that depends on your preferences/ particular needs for each account. There is in theory no reason why you cannot hold all three with the same company but there may be better suited accounts with different providers.

The "tax" account probably should be a savings account not a current account so that you maximise your returns on having money sitting around for up to 12 months or more

muchacho

Thanks for your reply Grumbler.

So my first step is to open a Cash ISA and fill it. This is a more long term saving plan.

So if I use my HSBC current account and just transfer 20% of my income each month to that account, I can then forget about it and just use that to settle my Self Assessment each year.

I know you said no more than 2, but there's 3 things remaining:
1) Income + Business Expenses
2) Personal Direct Debits
3) Spending account

So I'd have my income going into 1 account, but I'd also use that account when I purchase things related to work. It surely makes it easier handing over one bank's statements to an accountant, which covers all income/expense?

The direct debit account, would mean I know for the next month, all static things such as car insurance, gym, mobile phone etc are covered.

This equates to 4 accounts + Cash ISA. Thoughts?

muchacho

InsideInsurance wrote: »

So you say you want 3 current accounts:
1) Bills
2) Spending
3) Business

1 & 2 could be combined into one but if you struggle to manage your money you can split it out.

As to the number of banks you need, that depends on your preferences/ particular needs for each account. There is in theory no reason why you cannot hold all three with the same company but there may be better suited accounts with different providers.

The "tax" account probably should be a savings account not a current account so that you maximise your returns on having money sitting around for up to 12 months or more

I missed this reply as was replying to Grumbler.

I can't say I'm great at managing my money, which is why I think more accounts is better for me. So I would never spend too much that there's not enough to cover direct debits.

I'd also cut my HSBC card up as I wouldn't need to physically take money out.

I'm not too concerned yet with Interest % on savings until I've filled my Cash ISA quota.

InsideInsurance

muchacho wrote: »

I'm not too concerned yet with Interest % on savings until I've filled my Cash ISA quota.

Why for the sake of a few minutes effort on MoneySuperMarket etc are you not bothered about your savings %?

It probably wont ever make you rich but my tax savings accounts gets about £25 a month gross interest and I'd rather have a couple of free pints a month from my bank than it be sitting in a current account with 0% interest and effectively losing money on a daily basis.

psychic_teabag

InsideInsurance wrote: »

The "tax" account probably should be a savings account not a current account so that you maximise your returns on having money sitting around for up to 12 months or more

Except that at the moment, there are current accounts around which pay more interest than most savings accounts. A regular-saver account might be even better for the tax account, provided either it matures at the right time, or allows at least one withdrawal before maturity.

innovate

muchacho wrote: »

So if I use my HSBC current account and just transfer 20% of my income each month to that account,.......

You won't get much interest anywhere these days, and zero % in an HSBC current account. However, out of principle, you should look at getting some interest on the money you save up for your tax payment.

A Regular Saver account might be good for that purpose if you start it so it has matured when you need your cash for the tax. Reg Savers generally lock your money away for 12 months. It might therefore be the wrong time of year now for a Regular Saver for you - - but you could do it sometime early next year.

I think you should urgently look at opening a Nationwide FlexDirect - it pays you 5% AER on up to £2.5K for a year. Look at applying via Quidco or TCB to get the signup bonus.

There are several other current accounts that also pay more than an ISA (and might have a signup bonus, too). I don't actually understand why grumbler suggested you need an ISA now - - may be you need an ISA just before the tax year ends but you can definitely get more interest in current accounts for the next few months.

grumbler

innovate wrote: »

...I don't actually understand why grumbler suggested you need an ISA now

It was tongue-in-cheek a little.
The OP asked what account they needed to "put X amount in a Cash ISA" and I said that they obviously needed a Cash ISA account to do this.

InsideInsurance

psychic_teabag wrote: »

Except that at the moment, there are current accounts around which pay more interest than most savings accounts. A regular-saver account might be even better for the tax account, provided either it matures at the right time, or allows at least one withdrawal before maturity.

The OP is talking about using their HSBC current account which is currently 0% AER

Having just looked at the current interest rates offered, then yes, the rates have gone even lower than the 4% I got in around October last year and so Lloyds current account etc may be better

molerat

How does several current accounts help someone who is not very good at managing money, surely this multiplies the risk of bank charges. I use one current account and a six column excel spreadsheet. I do have access to other funds just in case - some cash in a Tesco card account and both Visa and Mastercard credit cards with different organisations which seems to cover most system issues. The Santander 123, possibly with the 2 yr ISA tagged on for longer term savings, should cover most of the OP's personal banking needs.