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Direct deposit into savings or checking accounts?

| MoneyRates.com Senior Financial Analyst, CFA
min read

Q:My new job requires that I have my pay deposited directly into a bank account. Does it make more sense to deposit my pay into a savings account or a checking account?


A: As with so many banking questions, the answer to this depends on the circumstances of your situation. There is no single right answer that applies to everybody. Ideally, you would deposit pay into a savings account, but here are four factors that could determine whether that approach would work for you:

1. Do you expect to have money left over at the end of the month?

It's important to save money if you can, so having your pay deposited into a savings account would be the most efficient way of making that happen. However, given how low interest rates on savings accounts are these days, the benefits of having direct deposit go into a savings account may not outweigh the drawbacks (which are discussed below) if you are going to be living paycheck-to-paycheck, with no money left over.

2. Does the checking account require a minimum balance to avoid a monthly maintenance fee?

Unless you have a free checking account, your bank may require you to keep a certain minimum balance in your checking account to avoid paying a monthly maintenance fee. According to the latest MoneyRates.com Bank Fees Survey, these fees average about $159 a year. So, if having your pay deposited into checking helps you avoid this kind of fee, it may be worth more than the interest you would earn by having your pay deposited into savings.

3. Are you confident in your ability to avoid overdrafting the checking account?

The MoneyRates.com fee survey found that overdraft fees recently rose to an average of more than $30 per occurrence. It's best to opt out of overdraft protection, but if you need your pay directly deposited into checking to avoid overdraft situations, this could make more sense than repeatedly paying a $30 fee.

4. Consider savings first

People have a tendency to deposit their pay into checking accounts, and then periodically transfer any accumulated money into savings accounts. However, a better saving strategy would be to have your pay deposited into your saving account, and then transfer a budgeted amount into checking to meet your expenses. This would maximize the interest you earn by getting your money into the savings account sooner, and perhaps more importantly, this method would help you put savings first, and have money available for spending only according to a budget.

So, as long as you can avoid a checking account fee and keep your spending within budget, depositing pay into a savings account would be preferable.

Find high interest savings accounts to grow your money and get the most out of your direct deposits.

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Comment: Do you prefer direct deposit into savings or checking?

More from MoneyRates.com:

What should I do if I can't direct deposit money into savings accounts?

Where should I send my direct deposit?

How do I deposit cash into an online bank account?

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Daniel 16 January 2016 at 5:43 pm

My money is going to my savings after I requested it go to checking... how do I fix that?

Jason Rodriguez 30 December 2015 at 7:55 pm

Can you deposit into both accounts ? Say like 10 dollars into savings and the rest checkings

Jeanne M 2 October 2015 at 4:50 pm

Thank you so very much, your article was a big help to me. Might I ask what should be done, in case your bank will not let you use your savings account for direct deposit? Thanks again.

Chris 15 May 2015 at 3:15 am

You might check with your employer to see if they allow you to split your direct deposits. I work at a university, and am able to have 95% of my pay direct deposited into my checking account, and the other 5% direct deposited into my savings account. This way, the money is automatically put into savings and I don't even have to think about it. If I'm short during the month, I can always transfer it over to my checking account. Hope this helps!

JOHNNIE 14 March 2015 at 1:43 pm

i THINK PUTTING DIRECT DEPOSIT IN SAVING FIRST IS A GOOD IDEAL TO SAVE,AND THEN SPEND......promoting saving first is a great idea,then to transfer money to checking account,,,,,,I will be getting money transfer from checking to savings, as soon as my check is deposit,,,,,before spending become a problem....Louisiana gal!!!!!