Can You Make Purchases Online Directly From a Savings Account?
Most people use a checking account to make purchases and pay bills and a savings account to put money aside for the future. That’s how how banks intend for consumers to use the accounts, and they reward consumers for saving by paying interest on their savings account balances. While you can’t make online purchases directly from a savings account, you can access your money when you need to. In the meantime, it’s best to let it grow.
How Do Savings Accounts Work?
When you deposit money into a savings account, the bank uses the funds to make loans to people and businesses. Just as it charges those people and businesses interest on the amount they borrow, the bank pays you interest on the amount you have deposited.
The bank using your money this way poses no risk to your funds. Banks maintain reserves to ensure that depositors can withdraw their money whenever they want. And should the bank fail, you money is insured by the FDIC — up to $250,000 per depositor, per bank, per account type.
Banks aren’t the only institutions that offer savings accounts. Credit unions, which are similar to banks but are owned by their members, offer them as well, but they call their version share accounts. Opening the account establishes your membership in the credit union, and the term “share” acknowledges your ownership share.
Whereas bank savings accounts earn interest, which are payments to depositors, credit union share accounts earn dividends, which represent the member’s share of the credit union’s profits. Credit union share accounts are insured by the National Credit Union Administration in the same amounts and under the same terms savings accounts are insured by the FDIC.
Do Savings Accounts Have Withdrawal Limits?
While you can withdraw money from your savings account whenever you want, a law called Regulation D restricts convenience withdrawals to six per month. “Transfers and withdrawals that are considered ‘convenient’ for this purpose are those made by preauthorized, automatic, telephonic agreement, order or instruction, or by check, debit card, or similar order made by the depositor and payable to third parties,” according to the Federal Reserve.
Regulation D limits have been suspended since April 24, 2020 due to the pandemic. However, some banks have reinstated the restrictions.
Some financial institutes, including Alliant Credit Union and Charles Schwab Bank, provide their savings account customers with ATM cards. However, they usually only provide them for savings accounts when you don’t also have a checking account, and most only allow you to use the card at an ATM machine — no swiping the card in stores or using it online.
Types of Savings Accounts
Banks offer several types of savings account other than standard savings.
High-Yield Savings Accounts
Other savings accounts include high-yield accounts that pay higher interest, accounts for children and students and special accounts, like holiday club accounts that help you save for gifts and entertaining.
Money Market Accounts
A money market account is a type of savings account that pays higher interest than a standard savings account and usually offers check writing privileges. However, money market accounts have the same Regulation D restrictions as savings accounts, so you’re limited to six convenience payments per month.
CD Accounts
Certificates of deposit are a more restrictive type of savings account known as time, or term deposits, and they often pay higher interest than a savings or money market account. When you open one, you agree to leave your money untouched until the certificate matures. CD terms typically range from 30 days to five years, but some banks offer terms as long as 10 years. The credit-union version is called a share certificate.
What Kinds of Payments Can I Make From My Savings Account?
You can pay some bills from your savings account, but banks rarely provide a debit card — different from an ATM — to do so for savings accounts. In fact, most don’t even allow direct payment from a checking account. GOBankingRates was unable to find a retailer that accepts payments directly from a savings account.
Should I Use My Savings Account for Payments?
Savings accounts are meant for longer-term savings, not purchases or bill payments. That’s why convenience withdrawals are limited to six per month. In fact, if you go over six, your bank could charge you an excess withdrawal fee and close your account or convert it to a checking account. Bank of America, for example, charges up to $10, and it will impose that fee up to six times per statement cycle.
There might be times when you need to withdraw money, perhaps to cover an unexpected expense or buy something you’ve been saving for. It’s best to save your six withdrawals for those occasions.
The other problem with using your savings account to make payments is that you’ll lose out on interest. That could really add up if your money is in a high-yield account. If it’s not in such an account now, consider making a change. Seeing your money grow is great incentive to reserve your savings for their intended use.
Smart Ways To Use Your Savings Account
Your savings account is a valuable asset. Here are some suggestions for how to put the account to good use:
Establish an emergency fund: An emergency fund can keep you from financial ruin in the event you lose your job, suffer a serious illness or injury or need a major repair to your home or car. A good goal is three to six months’ worth of expenses — and more if you can swing it.
Save for retirement: The best way to build a comfortable nest egg is to start early. Thanks to compounding returns, $1 invested at age 20 will be worth $5.84 by the time you turn 65, according to Vanguard, assuming a 4% return after inflation. That same dollar invested at age 55 will only be worth $1.48.
Pay down debt: Paying down high-interest debt is like hitting the jackpot with a stock. If you’re paying 25% interest on a credit card, you’re guaranteed a 25% return on any savings you invest in paying it down.
This article originally appeared on GOBankingRates.com: Can You Make Purchases Online Directly From a Savings Account?
