What is a linked savings account?

Broadly speaking, an account, which is connected to another one, for instance, NOW (negotiable order of withdrawal) or checking account is known as a ‘linked savings account.’ Often, these accounts are opened in the same bank as the customer's other accounts to facilitate the transfer of funds from one account to another.

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Frequently Asked Questions (FAQs)

When is a linked savings account connected to another account?

When a customer goes to the bank and opens a linked saving account, the bank interlinks it by the account number to the existing or a new NOW or checking account. These accounts are generally opened by those people who want to amass savings as they make funds transfer easier.

Why linked savings accounts are called packaged accounts

Since the balances of the linked accounts are recorded on a single consolidated statement, these linked savings accounts, at times, are also known as packaged accounts. Also, due to ease of transfer, linked accounts enable its customers to keep most of their funds into savings accounts, while they may transfer a portion of the funds into their NOW or checking accounts as and when needed.

What are the benefits of opening a linked savings account?

There are various reasons to open a linked savings account. Some of the benefits include:

• Facilitates convenience

Managing multiple accounts becomes easier with the help of a linked savings account. For example, a customer may have set up various accounts for emergency funds, payments for bills, loans, etc.

Linking these accounts with the checking account is very helpful, especially under those circumstances when in a specific account, money becomes short, and hence, funds can be easily transferred from the other account.

• Avoidance of overdraft fees

Overdraft fees are a burden when levied by a bank in case any payment or withdrawal is more than the amount present in the account. Moreover, when the account balance remains negative for a couple of days, banks may charge an overdraft fee per day.

But, in the case of a linked savings account, when the checking account is on the brink of being overdrawn, the concerned bank will immediately transfer some of the funds from the savings account to the said checking account, thus, helping the customer avoid an overdraft fee.

• Offering incentives

Many a time, banks offer incentives like lower fees, free checking, discounted interest rates on loans, fee waivers, or even offer a higher interest rate on deposits to a customer who opens linked savings account in the bank and maintains the minimum required account balance.

Are there any disadvantages of linked savings accounts?

As mentioned above, opening a linked savings account has numerous benefits. But there are times when these accounts may tend to appear as a burden. Some of its demerits include:

• May increase temptation to spend money

Many a time, customers tend to give in to the temptation to spend the funds accumulated in a savings account on unnecessary shopping. In other words, since both the savings and the checking accounts are linked to each other and funds can be easily transferred, the customer generally ends up with unnecessary spending of money, which otherwise could have been avoided.

• Overdraft protection comes with a fee

Often, customers think that by opening a linked savings account, overdraft fees may be avoided, which may not be the case. Sometimes, for transferring amount from one account to another, banks may levy a fee. Hence, customers must be cautious and vigilant and must have a thorough knowledge of the rules and regulations pertaining to a specific bank.

• Customers may miss out on higher interest rates

In the case of a linked savings account, since both saving as well as checking account is opened in the same bank, customers tend to keep all their funds in a particular bank. Hence, there may be situations when they miss out on higher and competitive interest rates offered by other banks and financial institutions.

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Is there any difference between a linked savings account and a joint bank account?

Under a joint bank account, a minimum of two people have an equal right to the said bank account. All the account holders have equal rights over the ownership of the funds accumulated in the bank account. This account is generally opened by the parents along with their kids, married couples, etc.

However, unlike joint account holders, linked savings account owners don’t share ownership rights of their respective accounts with each other. They control their own money while managing their finances with the other person.

Can accounts be linked from other banks?

Sometimes, as per the needs of the customer, both checking as well as savings accounts are not available within a bank. In such circumstances, customers may link their accounts from other banks. This option may be beneficial under those situations when a customer has a savings account which offers a high interest rate in one bank while the checking account is available in another bank.

Is a linked savings account safe to operate?

Generally speaking, linked savings accounts are safe to open as well as to operate as they are like any regular banking activity. Keeping the banking information safe and secure is on every customer's priority list, however, the actual safety of the accounts lies with the bank. Nowadays, banks offer enhanced security features like biometric login and multifactor authentication, in addition to one’s user ID and password.