Direct Deposit into Savings or Checking?

See how to find the best checking accounts and best savings accounts, and decide whether to have direct deposit into checking or savings.
By Richard Barrington

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Having your paycheck directly deposited into a checking account is a natural habit. However, the most natural habits are not always the most healthy ones.

Even if your checking account is what you use to pay most of your bills, you might find you can get more out of your money if your pay is directly deposited into a savings account.

In fact, direct deposit into savings can be a double win. It can help you save more money, and earn more on those savings.

In any case, how you choose both your checking and your savings account can make a big difference in how much money you have in the bank at the end of the year.

Should You Direct Deposit into Savings or Checking?

A typical approach to handling direct deposit of wages is to have the money go into savings. That makes it immediately available for spending.

However, whether this is actually the best use of your money depends on the answers to a few basic questions:

1. How much of your pay do you need to spend each month?

When answering this question, focus on the word need.

You may be spending virtually all of your pay from month to month, but that may be part of the problem.

Because money deposited into a checking account is readily available for spending, it can make it too easy to overspend.

So ask yourself how much of your monthly pay goes for essential expenses. If there isn't much left over after the essentials, you may not have much to gain by having direct deposits go into savings rather than checking.

However, if there is some cushion between how much you earn and how much you really spend, you may have something to gain by having your pay deposited into savings.

You may find it easier to actually save that cushion, rather than being tempted to spend it on things you don't really need.

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

Most checking accounts charge a monthly fee. However, they usually will waive that minimum fee if you keep your balance over a certain minimum.

If it can help you avoid paying a monthly checking account fee, it might be worth having your pay directly deposited into checking to keep your balance above the minimum.

There's an even better solution, though. That's to find a checking account with no monthly fee.

3. How good are you at avoiding overdrafts?

If you've had trouble with overdrafts, having direct deposit go into checking might be the best way of making sure you keep enough money in your account to cover your spending.

After all, overdraft fees are expensive, and it doesn't take too many of them to wipe out the benefit of saving a little more money.

Ideally though, you should learn to keep close enough track of your bank balance to avoid overdrafts without having to keep extra money in your checking account.

In particular, online accounts give you up-to-date information on your balance that can help you avoid overdrafts.

4. Do you have trouble saving money?

If you're great at budgeting and have had no problem controlling your spending and saving money, then there may be no reason to change your habits.

Most people aren't so lucky. Resisting the temptation to spend and keeping track of a budget is tough for a lot of people.

If saving money has been a problem for you, one step towards improvement might be to limit the amount of money that goes into your checking account.

Reasons to Direct Deposit into Savings

To understand why people traditionally have chosen checking accounts for direct deposit, it helps to think about the basic difference between checking and savings accounts.

Checking accounts are designed to be transactional. They don't limit the number of transactions you can make, and they generally come with features such as check-writing privileges, debit cards and automated bill paying that make it easy to make payments from them.

Savings accounts are intended more as a place to hold your money for a while. That money is available any time you need it, but savings account features aren't usually geared towards making a lot of payments from the account.

So if checking accounts are designed for making payments, why have your paychecks go into savings?

Well, it's simple enough to have pay directly deposited into savings but still use your checking account for regular payments.

All you need to do is to make a monthly transfer from savings to checking of a portion of your pay. This can be enough to cover your regular expenses plus an allowance for some spontaneous spending.

One benefit of doing this is that it will be easier to stick to a budget if you only make a limited amount of money available for spending. You're more likely to save money that way than if you have all your pay go into checking and then transfer whatever's left over to savings.

Another benefit is that savings accounts usually pay higher interest rates than checking accounts. So, having your money go into savings first means you'll have more of your money earning that higher rate.

Should Savings and Checking be at the Same Bank?

Managing spending while also trying to save money involves coordinating between a savings and a checking account. Does that mean it's best to have both those accounts at the same bank?

Not necessarily. In particular, online banks these days make it easy and cost-free to transfer money between banks.

So, it can be just as convenient to move money between accounts at different banks as it is to move money between accounts at the same bank.

The advantage is that allows you to pick the best terms for each type of account. After all, the best savings accounts and the best checking accounts aren't always at the same bank.

The next two sections of this article offer tips on finding the best of each type of account.

Tips for Finding the Best Checking Accounts

Asking the following questions can help you identify the best checking accounts:

  1. Is the account federally insured?

    Look for a checking account offered by an FDIC-insured bank, or an NCUA-insured credit union.

  2. Is it a free checking account?

    "Free checking" generally refers to accounts with no monthly maintenance fee, though these accounts may have other types of fees. Most checking accounts do charge a monthly fee, but there are plenty that don't if you know where to look. Online checking accounts are a great place to find free checking, because most do not charge a monthly fee. You can view hundreds of checking accounts on the checking account page.

  3. Can you meet the account minimums?

    Many accounts have minimum amounts you have to deposit to start an account, and minimum balances you have to maintain to keep the account open. However, there are checking accounts with little or no minimum requirements - especially if you look at online checking accounts.

  4. Does it have an ATM network convenient to your regular travels?

    You may pay two types of fees every time you use an ATM outside of your bank's network. If you are a regular ATM user, make sure you choose a bank with ATMs in places you regularly visit.

  5. Are its overdraft fees reasonable?

    If you sometimes overdraft your checking account, you are probably all too familiar with overdraft fees. To minimize these charges, look not just at the size of the overdraft fee itself, but also at whether the number of fees per occurrence is capped.

  6. Does it offer the features you need - at no extra charge?

    Whether it's paper checks or the latest online app, look for a checking account with features that match the way you use the account, and without added fees for those features.

See the checking account page for more details, or start by reviewing the selection of accounts displayed below.

Tips for Finding the Best Savings Accounts

Here are some questions that can help you identify the best savings accounts:

  1. Is the account federally insured?

    Like checking accounts, savings accounts are eligible for federally-backed deposit insurance as long as you are with and FDIC-member bank or an NCUA-member credit union.

  2. Do you meet the account minimums?

    Narrow your search to accounts with minimum balance requirements you can readily meet.

  3. Is the interest rate competitive?

    This can make a big difference. The savings account page can help you find which banks currently have the best rates.

  4. Does the interest rate fully apply to your account size?

    Some banks have rate tiers that apply different rates at different balance amounts. When comparing rates, be sure to compare the rate that would apply to the amount you intend to deposit.

  5. Will the account accept direct deposit?

    Direct deposit is pretty standard for checking accounts, but it may not be for savings accounts. If you intend to use your savings account for direct deposit, find out if the bank you have in mind can handle it.

  6. Can you make cost-free transfers out of this account?

    If you intend to make a transfer out of this account to a checking account for your monthly spending, make sure those transfers will be easy and cost-free.

See the savings account page for more details, or start by reviewing the selection of accounts displayed below.

Choosing a savings account for your direct deposit can help you save more, and finding the right team of checking and savings accounts can help you get more out of each type of 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!!!!!