If you have multiple bank accounts, managing your money might seem like navigating a maze of account numbers, login credentials and minimum balance requirements. To eliminate those frustrations, you might wonder if it makes sense to keep all your cash in just one account. Should you just keep everything in your savings account and make everyday purchases from there?
While you can, there are many reasons why this isn’t a good idea. And it could also cost you more in fees. Since savings accounts are designed for putting money in -- not taking it out -- there are sometimes limitations on how often you can make transactions in a given month. Checking accounts, on the other hand, are geared toward making everyday spending easy. You need both to be financially successful.
Read on to learn more about the big drawbacks of spending money from a savings account and why you should keep savings in a separate silo.
Savings accounts usually don’t offer debit cards
If you use a debit card often, you should rethink keeping your everyday funds in a savings account. Most savings accounts don’t come with debit cards -- most banks and credit unions that provide a card with a savings account provide only an ATM card.
While debit cards allow you to pay for purchases with a tap or swipe, you can typically only use ATM cards to make deposits and withdrawals 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.
Many savings accounts have monthly withdrawal limits
Even if your savings account does come with a debit card, you might not be able to use it as often as you’d like. Most checking accounts have no transaction limits 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 monthly transactions you could make 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 or credit union could impose a fee for each additional savings account transaction.
During the pandemic, the Federal Reserve suspended this rule. And according to the Federal Reserve’s FAQs, it doesn’t plan to re-impose these limits. But plenty of banks still charge fees when you exceed a certain number of monthly transactions. For example, Axos and Quontic both charge $10 per transaction once you exceed their monthly withdrawal limit of six transactions. These fees can add up fast.
Using a savings account for everyday purchases can sabotage your savings efforts
You could still use a savings account as your primary bank account, but it won’t always make sense.
You could deposit all your money in a savings account and then withdraw cash at an ATM for your spending. However, even if your bank doesn’t charge excessive transaction fees, mixing your savings -- one of the most important habits for your financial well-being -- with your spending money can create serious problems and derail your financial goals.
For instance, let’s say you’re putting money in a high-yield savings account for emergencies. If you dip into your funds for routine expenses, you could accidentally eat away at your savings. Then, if a worst-case scenario occurs -- you lose your job, for example -- your emergency fund will be lower than it needs to be to weather the financial storm.
You might also find it’s easier to overspend and derail your budget when your savings and spending money are combined.
Instead, it’s best to keep your savings separate and use another account for day-to-day purchases.
Pros and cons of using a savings account for daily purchases
If you’re considering using a savings account for your everyday spending, the upside is simple: You’ll earn more interest compared with other accounts. Many checking accounts don’t pay interest at all, and those that do often have meager interest rates compared to savings accounts.
The downsides, though, may make you reconsider. If your bank charges excessive withdrawal fees, you can easily wind up paying money to use your money -- which can wipe out your interest earnings fast. Additionally, the psychological benefit of a savings account cannot be overstated. Keeping your funds in separate bank accounts makes you less likely to dip into them before you need them.
Here’s a closer look at the pros and cons of using your savings account for frequent transactions like paying bills and making purchases:
Pros
Ability to regularly deposit money into an interest-earning account with some of the most competitive rates available
Simplicity of only having one bank account
May offer ATM card to easily deposit and withdraw money
Cons
Excessive withdrawal fees for some banks
Potential to delay your savings goals by overspending from the account
Many don’t offer a debit card for everyday transactions
Need to transfer money from your savings to another first before making a purchase -- which may not be instant
Other account options to consider for spending
The following banking products are better suited to daily expenses and bill payments than a savings account.
Checking accounts
If you plan to make purchases regularly, checking accounts offer more convenient services like cash deposits, check writing, debit card access and money transfers via payment networks like Zelle. But freely moving money in and out of the account means the bank must be ready to turn your deposit into cold, hard cash at any given moment -- which is why the rates are lower. So it’s best to keep only the money you’ll need to cover regular expenses in a checking account.
Savings accounts are better for storing money for the long haul because they pay a higher interest rate. Take Ally, for example. You’ll earn 0.25% annual percentage yield on checking account balances but 4.35% APY on savings account balances.
Money market accounts
If you’re planning on writing checks or making regular debit card purchases, a money market account offers the best of both worlds -- the easy liquidity of a checking account and the higher APY of a savings account. That said, most money market accounts require you to maintain a certain minimum balance to earn the APY or keep your account in good standing.
Money market accounts can also be a better pick if you plan on making a lot of ATM withdrawals. For example, Ally’s money market accounts offer unlimited ATM withdrawals, while the bank’s savings account has a limit of six monthly transactions of any kind before 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 10 other types of transactions -- like transferring money -- per statement cycle. If you exceed this limit “on more than an occasional basis,” Ally will close your account.
So should you spend money from your savings account?
While you can technically spend money from your savings account, that doesn’t mean you should. There are several disadvantages to using it as your everyday spending source, including sabotaging your savings efforts and paying excessive withdrawal fees.
Ultimately, you’re better off pairing a savings account with a checking account for your regular purchases. Opt for a high-yield savings account, which earns significantly more than a regular savings account. And if you’re looking for added interest potential, consider a rewards checking account.
FAQs
A savings account is a deposit account designed to store money you don’t plan to use anytime soon. You can make regular deposits and arrange automated transfers from a checking account to keep the balance growing, and your funds earn interest at a variable rate.
Savings accounts are considered “non-transaction accounts,” which means they aren’t designed for frequent transactions the way checking accounts are. As a result, there may be restrictions on how you can access your money. For example, some savings accounts limit how many withdrawals you can make in a statement period.
It’s wise to keep at least three months’ worth of expenses in your savings account to cover your costs in an emergency. Having more money is even better and can help you reach your short- and long-term financial goals.
Be sure to avoid putting too much in, though. Federal deposit insurance protects up to $250,000 per account holder, per financial institution for FDIC-insured banks and NCUA-insured credit unions. If your savings balance exceeds that amount, the difference won’t be covered.
If the bank issues a debit card that’s directly linked to the savings account, you can use the card for regular transactions. However, savings accounts aren’t meant to pay for regular purchases.
In most cases, you’ll get an ATM card linked to the savings account. That means you’ll need to withdraw cash to buy anything, which might not be convenient and likely comes with extra fees. In addition, you could miss out on interest earnings and sabotage your savings goals by using your savings account for regular purchases.
It depends on the bill you’re paying. If the company allows you to set up online bill pay with an ACH transfer from a bank account, you may be able to request that the money be withdrawn from your savings account. However, some companies accept only payments from a checking account.