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I'm currently carrying a balance in my checking account, much of which I feel is going to waste, since its not being "invested". The overall total balance in my checking account isn't growing much if at all month to month, but I have enough for about 3 months of living expenses.

I just recently opened a high-yield savings account with an interest rate just above 2%, which isn't great, but better than nothing.

What I want to do is put most of my money in the savings account, and then transfer some into the checking account a few times a month when I have to pay rent/loans/credit car/etc.

I am aware of the 6 withdrawals from savings per month limit, but I was wondering if, overall, the strategy I described above monetarily sound? Are there any pitfalls I should be aware of?

I feel like this is/should be a common strategy, but when I was looking into it, most of the information I found just described the Regulation D 6 transaction limit.

Edit One thing I thought of after asking this question that I don't think has been answered yet -- Is the timing of interest compacting relevant at all here? I believe on the website for my savings account it states that "Interest is compounded daily and credited to your Account monthly". So this sounds like I just need to maximize the time that I have a large balance in the account, as opposed to something like making sure that I have a large balance on the 1st of the month, but someone please let me know if I'm mistaken.

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    If you're going to expend that effort on account management, you might as well be using one of the activity-driven checking accounts that pay over 3% interest. – Ben Voigt Apr 21 at 15:01
  • Thanks, that's a good alternate suggestion, I will take a look at that list. – roger21 Apr 22 at 15:24
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    One possible pitfal that I don't think is worth a full answer... depending on the actual dollar amounts that you are dealing with, the amount of money you are earning with the 2% interest could be so small that even the small amount of time and effort it takes to do the transfers could simply be like working a far less than minimum-wage job. – GendoIkari Apr 22 at 20:33
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The approach looks fine, given your objectives. If you do your bills on a weekly basis and transfer the week’s total at one go from the savings account each week, you’ll only need 4 or 5 withdrawals per month, leaving you one or two spare, just in case.

The main thing to consider is the time your bank takes to transfer money between your accounts. Some banks prioritise deposits before withdrawals when both happen in the same account on the same day, but others might do the opposite. You don’t want to be overdrawn just because of a timing issue.

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    Ok. I'll bite. Why the "Australia" tag? – JoeTaxpayer Apr 21 at 13:25
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    @JoeTaxpayer The OP didn't specify a jurisdiction, so I made it explicit in my answer :) . As Ben Voigt correctly guessed, I don't know what Regulation D is. – Lawrence Apr 21 at 15:56
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    Understood. A long time here, never seen a tag thrown in like this, but it makes perfect sense. – JoeTaxpayer Apr 21 at 16:55
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    In the US, Reg T pertains to margin. Money market accounts are subject to Reg D. – Bob Baerker Apr 21 at 17:33
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    Thanks for the answer, I've updated my question with a US tag. – roger21 Apr 22 at 15:12
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There are no pitfalls in this strategy unless you violate the aforementioned 6 withdrawals per month or if the online savings account has a minimum balance and you drop below it.

It's not hard to figure out the timing of your monthly needs and to determine how much you should transfer from online to checking and at what intervals. If you find that you are cutting it close with the withdrawal number, split the money up into two online savings accounts, bumping the withdrawal number up to 12 per month.

  • If most bills can be paid via credit card (consolidating into a smaller number of payments) or ACH transfer, one might be able to skip the checking account entirely. Make the first five transfers from the savings account, then use the sixth to transfer the remaining balance to the next savings account. Lather, rinse, repeat. – Ben Voigt Apr 21 at 14:55
  • I have free checking with no minimum balance. If one had to pay a monthly fee for the checking account, I'd agree with you. One would still need a no fee source for cash. ATM? – Bob Baerker Apr 21 at 17:26
  • Yeah, you'd still want to have a checking account, but it wouldn't need to be part of the critical path for monthly expenses. – Ben Voigt Apr 21 at 17:35
  • As you mentioned, most bills can be paid with a credit card. I keep as much of free cash as possible in two high yield saving account and transfer money maybe twice a month into the free checking account. One of the two HY accounts also offers free checking so even though that falls under the 6 withdrawalsper month, if needed, I could write a large check immediately. I haven't had to do so but I could :->) – Bob Baerker Apr 21 at 17:45
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I have used this exact method for many years.

Most months I only need two or three transfers from savings to checking. I have the paycheck hit my checking account and then distribute the money into to a savings account designated for mortgage, insurance, property tax, savings for a new car, school.

I keep the balance of my checking account in the low thousands which means I can write almost any check or pay any bill I need without worrying about being overdrawn, but I know I can move money quickly to cover a large bill.

When a big bill for lets say tuition, or my life insurance policy, is due I transfer the money from savings to checking. I use this method because savings to checking can be done only 6 times a month, but checking to savings can be done an unlimited number of times each month.

I have no idea what percentage of bank customers do this.

  • Yours (keep one month's expenses, not 3, in the checking account) seems to be a pretty standard compromise. It matches my behavior as well. – Ben Voigt Apr 21 at 14:58
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I also do this but with slight variation. My paycheck goes into checking account. Then using my budgeting software I leave what I need to get through the month with a little extra for just in case, then the rest goes to savings account. If something unexpected comes up then I move money back, but generally, this is 1 and occasionally 2 transfers a month. I might miss on a little interest doing it that way, but I don't have to worry about exceeding the count.

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Below are some potential pitfalls with the strategy you described, along with possible causes and some tactics to assist in avoiding them. Depending on how you conduct your financial matters some of these pitfalls are more likely to occur than others.

Debits posting before transfer from your savings does = Overdraft fee.

This is a much bigger deal if your accounts are at two different banks with EFT transfers taking days. Some banks offer Zelle that will allow you to move funds almost instantly. I have been able to use Zelle to move funds between two accounts at different institutions using 2 different email address.

  • Bank Holidays & Weekends
    • Insure that transfers are setup to have funds arrive by xyz date vs send on.
    • Billers that auto withdraw funds from your checking account may take funds early to account for Bank holidays & weekends.
  • Unexpected/Emergency Debits
    • Pay for an emergency repair via check, repairman uses mobile check deposit before the the day's cutoff, your request the transfer today's cutoff, overdraft fee.

Daily vs Monthly Interest Computation

  • As you mentioned if your savings account only considers your balance on x day of the month, not so common any more. How much cash you have in the savings account only matters one day a month.

Free Checking, If...

  • Some checking accounts only waive fees if you:
    • Maintain a minimum balance in the account or in total assets with the bank.
    • Have a Direct Deposit of so much into the account.

Exceeding the Reg D 6 withdrawal limit.

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