The high-5 banking method: A helpful way to determine just how many bank accounts you need

Most people have at least two bank accounts to their name: a checking account and a savings account. Everyday cash sits in the first account while cash saved for the future sits in the second.

This sorting of funds can work seemingly just fine, but those that want a method to even further organize their money can consider what is called the “high-5 banking method.”

Created by Sahirenys Pierce, a personal finance influencer and educator who has previously worked in the financial sector, the high-5 banking method refers to having five bank accounts total: two checking accounts and three savings accounts. The idea is that each bank account serves a specific purpose or acts as a financial “bucket” that can make it easier to separate where your money goes and, ultimately, help you budget better.

Below, CNBC Select breaks down what exactly the high-5 banking method looks like, how it works and how you can best maximize this strategy.

The high-5 banking method requires having five bank accounts, each serving a specific purpose — here’s how they’re organized.

You would have two checking accounts consisting of:

1. Money for your bills
2. Money for your lifestyle

And you would have three savings accounts consisting of:

1. Money for your emergency fund
2. Money for your short-term goals
3. Money for your long-term goals

The high-5 banking method is essentially a strategy mimicking old-school principles that you should have different bank accounts for different needs. Here’s a closer look at how this strategy plays out in real life.

Two checking accounts

One of the two checking accounts is for your bills and is your highest-priority account. This is your “needs” fund and includes mandatory, routine expenses such as your monthly housing, utility bills, debt and essentials like grocery and gas.

The second checking account is your “wants” fund and includes discretionary spending such as entertainment, dining out, shopping or self-care things. By separating this money from your “needs,” you can avoid tapping into those essential funds.

How to allocate funds between these two checking accounts: The money in your “needs” fund doesn’t need to be much more than what you need to cover your planned expenditures. To help you figure out how much goes into your two checking accounts, look at your recurring cash flow. Write down your monthly bills, or essential costs. This includes rent, mortgage, utilities, property tax, transportation and groceries. This account holds just the exact amount of money needed to cover a month’s expenses and you can deposit exactly how much you’ll need to pay your monthly bills.

And then write down your ancillary spending for that month, costs such as dining out, shopping, subscriptions and gym memberships for that month. The money in your “wants” fund covers these expenses. Doing this practice can help you pinpoint a ballpark amount for each checking account given how much you have coming in.

Three savings accounts

Now onto the three savings accounts: emergency fund, short-term goal fund and long-term goal fund.

Unexpected expenses happen to everyone — medical visits, car repairs, sudden job loss — and the emergency fund savings account is to cover those costs. In your second savings account, your short-term goal fund, this money is earmarked for any purchases happening under one year such as holiday gifts, a big sporting event or concert. And in your third savings account, your long-term goal fund, there’s cash to be spent on goals happening over one year, like a future down payment on a home or your wedding.

Having more than one savings account helps you compartmentalize different savings needs so you can better visualize your progress in a rainy day fund versus your progress in saving up for a new car, for example. Plus, keeping your emergency fund separate means that you’ll be less tempted to dip into it on a daily basis or when tempted. You can set up an automatic transfer each month and leave it alone until you need it.

The high-5 banking method can be utilized best as a work in progress. You can work your way up to five accounts, starting first with the two checking accounts — one for your bills and one for your lifestyle — and a savings account to act as your emergency fund. The last two savings accounts of the five can be opened later on once you know what short- and long-term goals you’re saving up for.

Since banks may limit how many accounts you can have with them, consider budgeting apps that connect all your different accounts so you see them in one place. Mint, for example, syncs to your bank accounts, credit cards and retirement accounts to track your income, purchases and savings. In addition to offering basic budgeting features, Mint also provides bill payment reminders, customized alerts when you’re over budget and a credit monitoring service.

How to choose the best bank account

Maximizing the high-5 banking method also entails making sure you choose checking and savings accounts that are accessible, free and rewarding.

For example, the Capital One 360 Checking® is a top no-fee checking account, meaning there’s no monthly maintenance fee, no minimum deposit to open an account or minimum balance to maintain, plus no overdraft fees. Account holders earn 0.10% APY and have access to Capital One’s free ATM network of 70,000+ Capital One®, MoneyPass and Allpoint® ATMs.

The high-5 banking method helps you to use only enough funds to cover your present needs and wants while saving all the rest. This strategy limits extra cash from just sitting in your checking account, which can lead to spending unnecessarily, and it ensures you don’t miss out on higher earnings you could be getting on that cash by making sure anything leftover gets transferred to a high-yield savings account.

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