Linking Bank Accounts: Is It a Good Idea?
By linking your bank accounts, you can conduct electronic transactions between them. You can link bank accounts at the same bank or other financial institutions. If you’re starting a new account with an online bank, you might want to link your external bank accounts.
Imagine you already have a checking account with a local bank and want to start an internet savings account. Your initial deposit must be made using an ACH electronic money transfer according to the bank. You could link your current checking account to your new online savings account to arrange the transfer deposit.
Two bank accounts are linked does not mean they are the same account. It simply makes it easy to transfer funds from your checking account to your savings account or vice versa. And, as noted in the previous example of an online savings account, it may be required to link a checking account to deposit money into an online savings account if you cannot do so at a branch or ATM.
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Is Linking Bank Accounts Safe?
The short answer is yes, linking bank accounts is safe. Linking bank accounts is secure as any other type of banking transaction. Your bank or credit union determines the level of security. When logging into your mobile banking app, certain banks allow you to set up multifactor authentication or biometric login (fingerprint or facial recognition).
It’s critical to keep your banking information secure, especially if you do most of your banking online. If you don’t take precautions to protect your bank accounts, fraudsters and identity thieves can cause chaos.
If you’re unsure about your bank’s security procedures, you can look them up online or call a branch to inquire. If you’re transferring funds between accounts at various financial institutions, you may need to contact more than one bank.
How Can I Link My Bank Accounts?
When you open a new account with your current bank or credit union, it’s common for your accounts to be linked automatically. During the account opening procedure, you will be asked how you want to finance your new account. You have options to select your current account. The account should appear under your online or mobile banking login.
If you have multiple accounts at the same bank or credit union that haven’t been connected yet, ask the institution to do so on your behalf. When you log in to your online or mobile banking app, all of your accounts will be available.
How to Connect Bank Accounts from Various Financial Institutions
The most common way is by logging into one bank’s online or mobile banking system and providing key information for the account you wish to link. You’ll need the following information to link a checking or savings account to an external bank account:
- Account number
- Routing number
You can access one of the accounts you want to link through online or mobile banking. You’ll want to seek for the option to link external accounts in the banking menu. You’ll need to enter your routing number and account number.
Advantages of Linking Savings and Checking Accounts
When numerous checking and savings accounts are linked together, it becomes much easier to manage them. Assume you have several sinking funds set up for emergencies, one for a down payment on a home you’re considering buying and one for your bimonthly vehicle insurance payments.
You may connect each of these accounts to your checking account and regularly set up automated transfers between them. This is a simple way to automate your savings. If you need to use your emergency fund for a sudden need, you may simply transfer the funds to your checking account using online or mobile banking.
It could help you gain access to banking benefits and save money.
Linking your bank and savings accounts, as previously noted, may help you save money on ATM and cashier’s check costs. However, having connected bank accounts could save you money on additional costs.
Some banks, for example, levy a monthly maintenance fee for checking accounts. However, you can avoid paying the fee if you keep a minimum aggregate balance in your checking and savings accounts.
If you’ve linked your accounts, you may be able to avoid paying a monthly fee if you maintain the required minimum balance. Even a $5 monthly fee can build up over a year, so if combining accounts would save you money, that’s a compelling reason to do so.
It may assist you in avoiding overdraft fees.
Overdraft refers to a negative balance in your checking account. If you use your debit card to make transactions against a check that hasn’t cleared yet, this can happen. Banks can cover those expenses for you, but they may charge you one or more fees. Overdraft fees can eat into your savings if your account balance falls below zero. In 2021, the average overdraft cost was roughly $25, but some banks charged more. Banks may also charge numerous overdraft fees per day or an extended overdraft fee if your account balance is negative for more than a specific number of days.
You can utilize your funds as overdraft protection when you link your checking and savings accounts. This is a service that you must request from your bank and can help you avoid overdraft costs. If your checking account is about to be overdrawn, your bank will automatically transfer funds from your savings account to your checking account to avoid an overdraft fee.
The Drawbacks of Linking Savings and Checking Accounts
Overdraft Insurance Isn’t Always Free
If you’re considering enrolling in overdraft protection to avoid overdraft penalties, keep in mind that this service isn’t always free. Banks might still charge you a fee for transferring money from your savings account to your checking account. Although this fee may not be as high as the $25 or more you could pay for an overdraft, depending on the bank, you could still end up spending $10 to $15 every transfer.
You don’t have to sign up for overdraft protection when you link your checking and savings accounts. However, you’ll need to keep track of your checking account activity and balance to avoid overdraft fees. Setting up the transaction and balance alerts is easy to achieve.
It may be Too Convenient.
Your money is always available if your checking and savings accounts are connected. While this is beneficial in the event of an emergency, it can also lead to the temptation of overspending your funds. Linking your checking and savings accounts necessitates some discipline and an understanding of how you intend to use your savings account. Setting up a separate savings account for “fun money” that you can link to your checking account can avoid you from draining your emergency fund on non-essentials if you know you’ll be tempted to dip into saves from time to time.
You may miss out on better rates.
When creating a savings account, it’s good to check the interest rates and annual percentage yields offered by different institutions. Keeping your savings and checking accounts at the same bank may not necessarily be the best option if you can obtain a better APY on savings elsewhere.
Is it a good idea to link your checking and savings accounts?
Whether or not you should link your checking account to your savings account is mostly determined by your personal financial management preferences. Linking bank accounts could let you achieve both if you value convenience and want to save money on banking fees.
If you don’t need to shift money between your bank accounts, you may wish to keep them separate. This is also a good approach to prevent the temptation to spend money from savings on needless purchases.