Since bank customers typically have both a checking account and some form of savings account, an important question when choosing a bank is which type of account should they concentrate on -- or should they shop for these accounts separately?
Here are arguments for and against bundling accounts, and some tips on what might tip the scales one way or the other.
Arguments for keeping accounts together
- Relationship banking. Some banks reward customers for the total size of the relationship across all their accounts. These rewards my take the form of waived checking account fees and/or higher savings account interest rates.
- Convenience. Sometimes, it can be easier to deal with just one bank, and having checking and savings accounts in the same place can make transfers between the two more effortless as well.
- Overdraft protection via linked accounts. Some banks offer automatic programs that will transfer money from savings to checking in the event the latter is overdrafted. Fees for this kind of service are typically lower than ordinary overdraft fees.
Arguments for keeping accounts separately
- Finding the best terms in each case. Comparison shopping is complicated when there are two sets of terms to consider -- those for the savings account and those for the checking account. What if one bank offers the highest savings account rates, but another offers free checking? Wouldn't it be best to separate the accounts to take the best deal for each account?
- Freedom to move. Checking accounts can be difficult to move. There are direct deposit and automatic bill pay instructions to change, and sufficient funds must be kept in the old account to cover any unsettled checks. Moving a savings account is typically less complicated, so the savings account shouldn't be tied down by the checking account if a significantly better rate becomes available somewhere else.
- Drawbacks of overdraft protection. Automatic transfers from savings to cover checking account overdrafts may be cheaper than ordinary overdraft fees, but they still come at a cost. Plus, they make it all too easy to dip into savings and spend too much.
Here's how to decide between the above arguments:
- How the details add up. Customers should do the math and decide whether the financial benefits of bundling the accounts would exceed what they could get by choosing each account independently.
- The size of each account. The size of each account may determine how the above math comes out, and customers with large amounts in checking and savings should generally find it easier to get good terms whether the accounts are bundled or not.
Ultimately, the important thing is that customers should not feel obligated to do all their banking with one institution. Each account situation should be evaluated on its own merits, and the accounts should be kept together only if it results in the best total outcome for the customer.