A Separate Checking Account for Bills: How to Set One Up

A separate checking account for bills does one job: it pays your bills. Each payday you transfer in exactly what your bills need, and every autopay and bill payment comes out of that account. Your main account then holds only money you can spend, so a glance at your balance tells you the truth.

Here’s how to set one up and how much to transfer.

Why it helps

Two problems go away with a bills account:

1. The false balance. Your main account no longer looks richer than it is because rent hasn’t come out yet.
2. Surprise overdrafts. The CFPB says that if your balance is too low when an automatic payment is due, “both the bank and the company might charge you a fee.” A bills account that’s funded before each due date makes that much less likely.

Step 1: List every bill

Gather two or three months of bank and card statements and list every recurring bill, plus yearly bills like car insurance, registration and memberships. Our bills spreadsheet template has a layout with a column for which paycheck covers each bill.

Step 2: Work out your transfer

Your transfer is your monthly bills plus one-twelfth of everything that isn’t monthly. A worked example, with made-up amounts:

Bill	How often	Amount	Monthly share
Rent	Monthly	$1,350	$1,350
Electric and gas	Monthly	$140	$140
Internet and phone	Monthly	$120	$120
Car payment	Monthly	$320	$320
Car insurance	Every 6 months	$540	$90
Car registration	Yearly	$120	$10
Total			$2,030

If you’re paid twice a month or every two weeks, split the total by which bills each paycheck covers. For example, rent due on the 1st comes from the paycheck before it, and the car payment due on the 20th comes from the mid-month one.

Step 3: Open the account and move your bills

1. Open a second checking account. Using your current bank usually makes transfers between accounts instant.
2. Set up an automatic transfer from your main account for the day after each payday.
3. Move bills one at a time. Update the payment account with each company, and confirm the next payment came from the new account before moving the next bill.
4. Leave a small buffer in the account for the first couple of months.

Moving autopay safely

When you switch an autopay to the new account, keep an eye on the old one until the switch is confirmed. If a payment you’ve moved still comes out of the old account, the CFPB explains that you can tell the company you’re taking away permission and give your bank a stop payment order at least three business days before the payment is scheduled. If your bank asks for it in writing, the CFPB says to provide it within 14 days of telling them by phone.

Step 4: Keep it in balance

Bills change. When a company tells you an automatic payment will change, adjust your transfer the same day. The CFPB says the company should let you know at least 10 days before a scheduled payment if the amount changes.

Once a year, compare what went into the account with what came out. If the balance keeps growing, transfer less. If it gets close to zero before payday, transfer more.

Is your money insured?

At an FDIC-insured bank, the FDIC says deposit insurance “covers $250,000 per depositor, per FDIC-insured bank, for each account ownership category,” and checking accounts are covered. A bills account holding a month of bills is well within that.

Make due dates visible too

A bills account handles the money. It doesn’t tell you when each bill is due or whether it went out. A bill tracker such as Billo lists every bill with its due date and reminds you 3 days before each one, which makes it easy to catch a bill that didn’t move to the new account.

Is it right for you?

A bills account suits you if your bills land on different days, you often aren’t sure what’s still to come out, or you share bills with someone and want one place where everyone’s share goes. If all your bills already come out the day after payday, a clear list of due dates may be all you need.

Summary

• One checking account just for bills.
• Transfer monthly bills plus one-twelfth of yearly bills each payday.
• Move autopays one at a time and confirm each one.
• Adjust the transfer when a bill changes.