A savings account is a good place to stash extra money for a sinking fund or emergency savings. While savings account rates are still high, you can earn interest on the money you’re putting aside. But does it make sense to use a savings account as a primary bank account for everyday spending?
If you’re aiming to take advantage of the best savings rates that are still around, you might be thinking about depositing all your cash in a savings account and using it for your daily expenses. It’s not quite that simple, though. Usually, savings accounts are designed for putting money in -- not regularly taking it out. Withdrawing cash and making routine transactions isn’t as straightforward with a savings account as it is with a checking or money market account.
Here’s what to know before merging your checking and savings funds, why savings accounts aren’t the best for everyday spending, and other flexible options you should consider.
Many savings account have withdrawal limits
There’s no transaction limit with most checking accounts as long as you have enough money to cover the charge. Savings accounts, though, are a different story.
Historically, the government imposed a limit on the number of transactions you could make each month from a savings account. Regulation D set a limit of no more than six withdrawals from a savings account during a statement period. After that, the bank could impose a fee for each additional transaction. However, during the pandemic, the Federal Reserve suspended this rule. And according to the Federal Reserve’s FAQs, the board doesn’t have plans “re-impose transfer limits.”
But some banks still charge fees when you exceed a certain number of transactions per month. For example, banks like Axos and Quontic both charge $10 per transaction once you exceed the limit. So, for example, if you made 12 transactions from your savings account in the next statement period, you could wind up paying an additional $60 in fees.
Even if you can use a savings account for everyday transactions, you shouldn’t
There are still ways you could use a savings account as your primary banking method, but it won’t always make sense. You could deposit all your money in a savings account and then withdraw the cash at an ATM for your spending. However, there are some serious drawbacks to that plan. Even if your bank doesn’t charge excessive transaction fees , mixing saving -- one of the most important patterns of behavior for your financial well-being -- with spending can create serious budgeting problems.
For instance, if you’re putting some of your money in a high-yield savings account for emergencies or to save up for a car, but you dip into your funds for routine expenses, you could accidentally eat away at your savings.
Instead, it’s best to keep your savings separate and use another account for other day-to-day purchases.
Savings accounts usually don’t offer debit cards
If you use a debit card often, you should rethink moving your everyday funds to a savings account. Most banks don’t offer debit card access with a savings account, and the vast majority of banks that do usually only offer ATM cards, not debit cards. While debit cards allow you to pay for purchases with a tap or a swipe, ATM cards can generally only be used to make withdrawals and deposits at an ATM, though this varies by bank. If you want a card that links to your money for convenient spending, you’re better off with a traditional checking or money market account.
Pros and cons of using a savings account for daily purchases
If you’re thinking about using a savings account for all your everyday spending, the upside is simple: You’ll earn more interest compared to other accounts.
The downsides, though, may make you reconsider. If your bank charges excessive withdrawal fees, you can easily wind up spending money to use your money -- which will wipe away your interest earnings fast. Additionally, the psychological benefit of a savings account cannot be overstated. By keeping your funds in separate accounts, you can watch your money grow over time.
Here’s a closer look at the pros and cons:
Pros
Ability to regularly deposit more money into an interest-earning account
Flexibility to withdraw or transfer funds without paying a penalty
ATM card may be available to easily deposit and withdraw cash
Cons
Excessive withdrawal fees for some banks
Potential to delay your savings goals if you overspend from the account
Most banks do not offer a debit card for everyday transactions
You must transfer money from your savings to another account first before making a purchase -- which may not be instant
Other account options to consider for spending
Checking accounts
If you plan to make purchases regularly, checking accounts come with more convenient services like cash deposits, check writing, a debit card and money transfers via payment networks like Zelle. But freely moving money in and out of the account means that the bank will need to be ready to turn your deposit into cold, hard cash at any given moment -- which is why the rates are lower.
Savings accounts are best for keeping money for the long haul. Banks look at savings accounts as a place to stash money for the foreseeable future. Because of that, they’re often willing to pay more interest on a savings account than a checking account. Take Ally, for example. You’ll earn 0.25% APY on checking account balances, but you can earn 3.75% APY on savings account balances.
Money market accounts
If you’re planning on writing physical checks or making regular transactions per month, a money market account offers the best of both worlds. Banks like Synchrony and Ally offer money market accounts with these features. Unlike these banks, most money market accounts require you to maintain a certain minimum balance to earn the annual percentage yield or to keep your account in good standing.
Money market accounts can also be a better pick if you’re planning on making a lot of withdrawals via ATM. For example, Ally’s money market accounts offer unlimited ATM withdrawals, while the bank’s savings account has a limit of six transactions of any kind prior to incurring an excessive withdrawal fee. However, some banks also set transaction limits for money market accounts. You can withdraw as much money as you want at the ATM with Ally’s money market account, for example, but it only allows six other types of transactions per statement cycle -- like transferring money.
The bottom line
Yes, you can spend money from your savings account, but there are quite a few disadvantages to trying to turn your savings account into your everyday spending bucket. You can wind up paying out-of-network ATM fees and excessive withdrawal fees.
Ultimately, you’re better off with a high-yield savings account to earn interest and still have access to the money if you need it, along with a checking account that you can use for your everyday purchases. If you’re looking for interest potential, combine a high-yield savings account with one of the best rewards checking accounts on the market to put all your money to work while keeping your funds separate.