What Is a Linked Savings Account?

A linked savings account is connected to another account, such as a checking or negotiable order of withdrawal (NOW) account. Typically, linked savings accounts are held at the same financial institution as the associated accounts, simplifying the transfer of funds between them.

Key Takeaways

• Linked savings accounts are associated with other accounts, like checking or NOW accounts, facilitating easy transfers between them.
• These accounts are sometimes referred to as packaged accounts.
• Balances across linked accounts are often consolidated into a single statement.

How Linked Savings Accounts Work

When a linked savings account is opened, the financial institution connects it to a checking or NOW account, either new or existing, within their system. This setup is a powerful tool for individuals who wish to grow their savings conveniently. Linked accounts, also known as packaged accounts, usually provide a consolidated statement for all linked accounts, simplifying account management. Customers can maintain most of their funds in a savings account, potentially earning higher interest, and move money into the checking or NOW account as required. Some linked accounts may offer additional benefits such as reduced fees or complimentary checking services.

Special Considerations

Certain other accounts, such as certificates of deposit (CDs), can also be linked to your primary bank accounts. Banks often promote linking multiple accounts by offering advantages such as higher interest rates. However, linking accounts can sometimes lead to extra charges. For example, while connecting a savings and checking account can provide overdraft protection by transferring funds to cover a low checking balance, this convenience may come with fees. Frequent transfers also cause your savings account to dip below the minimum balance, triggering further fees.

If you find that different banks offer the best checking and savings accounts for your needs, linking accounts from other banks is an option. This approach can be advantageous if you prefer to keep extra cash in a high-yield savings account unavailable at your checking bank. Be sure to look for options to link external accounts, though this may require providing additional information and could result in longer transfer times. There might also be limits on the number of external transfers permitted monthly.

Benefits of Linked Savings Accounts

Linked savings accounts offer several benefits. Banks may incentivize these accounts to secure a more significant portion of your business over time, resulting in better interest rates for you, especially if you maintain a higher balance. Additionally, having your accounts consolidated in one place and being able to transfer funds quickly and easily simplifies overall money management.

Why might consumers want to consider a linked account?

Linked savings accounts allow individuals to keep most of their funds in a savings account, often offering the promise of higher interest rates while transferring money into a checking or NOW account as needed. These accounts may also have perks like lower fees or free checking services, providing a bright outlook for your financial future.

What should you be careful of when opening a linked savings account?

When considering a linked savings account, it’s important to be aware of potential drawbacks. Linking accounts can sometimes incur additional fees. Banks automatically transfer funds between accounts to maintain balances or cover payments, which could lead to fees for each transfer. This could be problematic if it causes your savings account balance to drop below the minimum requirement, resulting in additional charges. Additionally, linking accounts might add complexity if you decide to close one or switch banks.