3 good reasons to dump your savings account


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Save. Save. Save.

That’s a favorite mantra of financial planners who say people should set aside savings for emergencies, major expenditures, large bills, Christmas gifts and other spending.

The idea is to be ready with cash rather than credit when you want to make a purchase. But should you do all that saving in a basic savings account?

Most basic savings accounts are places to park your cash and they earn a pittance of interest. A better option might be a high-yield checking account, which pays a higher rate than a basic savings account or traditional checking account, says Jason Lindstrom, chief marketing officer at Belvoir Federal Credit Union in Woodbridge, Virginia.

What is high-yield checking?

High-yield, or rewards, checking accounts offer higher rates than traditional checking but carry more requirements, such as having to make 10 to 15 debit card transactions a month.

With high-yield checking, you can dump your basic savings and no-frills checking and do your saving and checking utilizing one account.

Here are the details:

You’ll score a higher rate. With high-yield checking, you can earn more in interest and still complete deposits, withdrawals, payments and other transactions.

The 2016 Bankrate High-Yield Checking Survey found a range of rates for such accounts. The average was 1.65%, but 21 of 56 accounts surveyed paid 2% or more.

Common bank account features

Savings account Basic checking account High-yield checking account
Monthly fee No* Yes** No*
Minimum balance Yes No Yes
Interest Yes No Yes*
Debit/ATM card No Yes Yes
Online banking Yes Yes Yes
Mobile banking Yes Yes Yes
Mobile deposit Yes Yes Yes
Unlimited transactions No Yes Yes
Other perks No No Yes

*With minimum balance.

** May be waived with minimum balance, direct deposit, automatic transfers or other monthly transactions.

Based on basic accounts at sample banks. Specific offers may differ from bank to bank.

Top savings accounts pay a bit more than 1%, though others pay as low as 0.1%, according to Bankrate.com savings account listings. Traditional checking accounts are even less generous.

“Most checking accounts don’t have interest associated with them from which you are going to make money, unless you get into their premier, higher-end account,” Lindstrom says.

Still, even a slightly higher rate can make a difference over time.

Using Bankrate’s compound interest calculator, $10,000 saved in a basic savings account for 10 years at 0.25% interest gets you $10,253. If you saved that same amount in a high-yield checking account at 1.5% for 10 years, you’d have $11,618. That’s a difference of $1,365, just by moving to a high-yield account.

“(These accounts) might offer mechanisms that encourage people, nudge them into saving,” says Nessa Feddis, senior vice president at the American Bankers Association in Washington, D.C.

Even so, a high-yield account likely has a cap on the amount that will capture the higher rate and require as many as 15 debit card transactions each month, Bankrate’s high-yield survey shows, so it’s important to read the requirements.

You’ll face no monthly fee. With high yield checking accounts, there are no monthly fees. With a basic checking account, you’ll likely pay a monthly maintenance fee, unless you keep a minimum balance or complete certain transactions like direct deposits.

And with savings, Lindstrom warns it isn’t set up to be transactional. “You’re limited in the number of transactions you can have with that savings account in a month,” he says.

You’ll log in to an e-statement. 98% of high-yield checking accounts reviewed have an e-statement, Bankrate’s survey shows. With basic savings and no-frills checking accounts, you’ll receive a paper statement.