What Happens When You Have Your Savings and Checking Accounts at Separate Banks?

In 2021, an estimated 4.5% of U.S. households did not have any sort of bank account, according to the FDIC. But that means that most Americans do have either a checking account, a savings account, or both. In fact, it's ideal to have both types of accounts. That way, you can use your checking account to pay your bills, and your savings account can function as an emergency fund.

But while it's a good thing to have both a checking account and a savings account, you don't necessarily need to have them both at the same bank. Keeping the accounts at different banks could actually work to your benefit.

When you keep your money separate

The advantage of having a checking account and savings account at the same bank is that you can generally transfer money between the two instantly. So, let's say you need to write a check for $4,000 for an unplanned home repair bill and you only have $2,000 sitting in your checking account. In that case, you can usually transfer the money you need on the spot so you don't have to worry about your $4,000 check clearing.

When you have your checking account and savings account at separate banks, it could take a few days to transfer funds between the two (meaning, the transfer itself might take a few seconds, but the funds may not move over for a few days). And when you need a boost to your checking account such as in the scenario just described, that could be a problem.

But otherwise, having your checking account and savings account at different banks could work to your benefit, because you get a true separation of your money. And you may be less tempted to dip into your savings account for non-essential reasons if it's in a completely different bank. To put it another way, you might trick your brain into thinking your savings are really off-limits if they're not held at the same bank as your checking account.

You also get a higher limit of protection

When you have money at an FDIC-insured bank, you're protected for up to $250,000 in deposits at that bank. Another benefit to keeping your checking account and savings account at separate banks is that by doing so, you'll effectively double that limit to $500,000.

Now chances are, you're not keeping more than $250,000 in a checking account. And you may not have anywhere close to that amount of money in a savings account, either. But given the number of banks that have failed lately, it might make you feel good to know that you have extra FDIC insurance.

You definitely don't have to keep your checking account and savings account at separate banks. And some people might tell you that having both at the same bank is much more convenient. But it pays to consider keeping your money at different banks due to the benefits you stand to reap.