What are the pros and cons of linking checking and savings accounts?

Q: What are the pros and cons of linking checking and savings accounts?

A: This is an excellent question, because it seems to come up in so many different contexts. It is relevant to both how people shop for checking and savings accounts and how they manage their money from day to day.

Here's a look at the pros and cons:

Benefits of linking checking and savings accounts

Here are three potential benefits of linking your checking and savings accounts at one bank:

  1. Convenience. Whether you still make trips to your local bank or manage your accounts electronically, coordinating multiple accounts is generally easier when they are within one institution.
  2. Bargaining power. Banks often offer special deals to customers based on how much they have on deposit, so having two accounts at one bank can help you meet the threshold amounts to qualify for these deals. This can make it easier to get free checking or earn you a higher interest rate on your savings.
  3. Overdraft protection. Banks offer various forms of overdraft protection, but one of the most practical is an arrangement to automatically transfer money from savings if you overdraw your checking account.

Drawbacks of linking checking and savings accounts

On the other hand, here are three potential drawbacks of tying your checking and savings accounts together:

  1. Coordinating FDIC insurance coverage. The $250,000 limit on FDIC insurance coverage applies to the total of all accounts an individual has with one bank. Admittedly, this is only an issue for larger customers, but if your deposit amounts are getting up there, you need to coordinate your account balances to make sure you don't exceed the insurance limit.
  2. Independent shopping. You have more options if you are free to choose your checking and savings accounts independently of one another. You may find the best accounts in each category are at different banks.
  3. Overdraft protection. How can overdraft protection be on both the list of pros and the list of cons? Because making it too easy to access savings via your checking account can chip away at your savings account over time. If you find your overdraft protection kicking in regularly, you might be better off with a more rigid arrangement that forces you to develop better banking habits.

There is enough to be said on both sides of this issue that there is no universal, one-size-fits-all answer. To decide what answer is right for you, weigh the above pros and cons in the context of your needs, your banking habits and the availability of banking products in your area.

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