What Is a Linked Savings Account?

A linked savings account is a savings account that is connected to another account such as a checking or negotiable order of withdrawal (NOW) account by account number.

Linked savings accounts are generally offered at the same bank, providing the customer with convenience. By holding a linked savings account, the customer is able to keep the majority of his funds in the savings account and move money over into the demand account as needed.

How Linked Savings Accounts Work

When a customer opens a linked savings account, the bank or financial institution connects it to a new or existing checking or NOW account in the system by account number. By linking the accounts, the customer is able to transfer funds between both accounts with ease. One of the primary motives for setting it up is to provide a convenient way for the customer to accumulate savings.

Linked accounts are sometimes called packaged accounts. The balances on both this account and the checking or NOW accounts are generally reported on a single consolidated statement. This arrangement also often allows the customer to receive a higher rate of interest in the savings account on the bulk of the money.

The balances on both the linked savings account and the checking or NOW accounts are generally reported on a single consolidated statement.

By offering a linked savings account, it may also qualify the customer for reduced service charges or free checking.

Key Takeaways

  • Linked savings accounts are savings account that is connected to another account such as a checking or negotiable order of withdrawal account by account number.
  • Customers are able to keep the majority of their funds in the savings account and move money over into the demand account as needed.
  • Linked accounts are sometimes called packaged accounts.
  • The balances on both this account and the checking or NOW accounts are generally reported on a single consolidated statement.

Using Linked Savings Accounts

Other types of accounts, such as a certificate of deposit (CD) or debit card, can also be connected to a savings account under a linked account. With the combination of accounts, there may be new guidelines and rules for the account holder. For example, a bank may set a minimum balance where the interest rate is higher than the yield from a traditional savings account. The intent under such terms is to encourage the account holder to continue to put funds into the linked accounts.

Conversely, the terms of a linked savings account may apply the higher interest rate only toward funds under a certain amount, as a way to attract new customers.

Account holders may face higher costs with linked accounts. If a debit card, for example, is linked to a savings account, using the debit card as frequently and to the same degree as cash could rapidly drain the account of funding. Should the account fall below the minimum balance, fees may be triggered. Furthermore, the transactions themselves may incur fees.

Linked Savings Account Benefits

Linked savings account are structured in a way to give an advantage to the institution. By offering linked savings accounts, the bank can keep as much business as possible. The terms of these savings accounts may also drive customers to keep their funds in the account on a long-term basis, with costs and penalties that are triggered against withdrawals. This means customers who are in the habit of accessing funds from one type of account may not be readily aware of the fees they may incur by continuing with such behavior with linked accounts.

Customers who do not need regular access to their assets also benefit from establishing linked savings accounts. Not only do they have an advantage of the potential of higher returns, customers have the convenience of making transfers easily between accounts.