Since I’ve started running this blog, I’ve been doing a lot of thinking about my own personal finances. Particularly about where I should store my savings. I was shopping around for an online savings account when a question came to my mind. Can I spend money from my savings account? I feel like that’s something I should know. So I did a little digging around myself and came up with this answer:
No you can’t. At least, not without limitations. All online transactions from your savings account are limited to 6 per month. Additionally, many savings accounts don’t support bill payments, but even the few that do limit the number of transactions you can make. Let me explain why.
Long story short, it would be a huge hassle for the bank if they let you take money out whenever you want. Banks prefer if you keep your money in one place and don’t touch it. That’s how Banks make their money. They essentially borrow your savings money and lend it out to people with interest.
This is why they have so many account choices for you. Different accounts have different restrictions so that they can better plan how to properly use your money to make more money. Are you going to be taking money out a lot? Are you trying to do something more long-term? Do you need to take out cash from an ATM? Are you going to be writing checks? If so what kind of checks are you going to be writing? These are questions they want answers to so they can figure out how to best handle your money.
Bank Economics Explained
Here’s a little bit of a more in-depth explanation of what’s going on here. When you put your money into a savings account, the bank uses that money to give loans to people. When they give out these loans, the loaners will someday pay back that money with interest (hopefully). The interest the banks get back from these loans is how banks profit.
I’ll give you a little example. Let’s say your friend Amy gives you $20 to hold onto for safekeeping. You see this is a little opportunity to make a quick buck. You decide to loan out the $20 to another friend, Sally, with the condition that she will pay you $2 in interest for borrowing it on top of the $20 in 2 weeks. Sounds like a good deal right? If everything turns out good, you get $2 for not doing all that much and everyone wins.
But here’s the problem. One week in, Amy wants to get $10 back from her $20 she let you hold on to. The problem is Sally has the $20. Now you have to work overtime at your job to get those $10 for Amy, ruining your plans for that night. What’s worse, Amy has to wait another day until she can get her money back. Wouldn’t it have been nice if Amy could have just waited another week to get her money back?
Savings Accounts Explained
This is where the savings account comes in. Savings accounts have more restrictions on how many times you can withdraw money from the account within a certain period of time. This helps protect the bank from situations like the one above. Overall it just causes fewer problems for the bank to deal with, saving them money. It’s also good for you because it helps you keep your own hands off of your hard earned savings so that it can grow.
In exchange for this, savings accounts typically offer higher interest rates and fewer fees for you than for checking accounts. They are inherently designed for long-term savings. When you sign up for a savings account it is assumed that you will keep the money there for long periods of time in exchange for a higher interest rate and fewer fees.
It’s not just the banks that are making these rules. The Federal Reserve has a law that puts this limit in place. Regulation D says that you can’t make more than six withdrawals or transfers per month out of your savings account (with certain exceptions). This rule applies to money market accounts, too.
The upside is this only applies to online transactions. So if you do your withdrawals in person or through an ATM, this doesn’t apply. However, many online banks (the ones with the highest interest) don’t have ATMs readily available for you. A lot of them don’t even have physical branches for you to visit to handle your money in person.
At the same time, savings accounts are really not designed to make bill payments. Many banks don’t let you write any checks or pay off any bills through your online savings account. You would have to transfer your money first to a checking account then make the payment to do that. But even if you try to spend your money this way, you might have to wait one or two business days for the amount to transfer to your other account.
Overall, it’s just a little cumbersome and sometimes restrictive to get your money out of your savings account. That’s why you should only take money out for emergencies or for big financial decisions.
What can I do instead?
There are a few options available for you if you want to spend your money a little bit more regularly or pay bills:
Open a checking account
A checking account is designed to let you have the most flexibility with your money. You can pay off your bills, withdraw cash, and pay off credit cards with a checking account with fewer restrictions. The downside is you’ll get less interest and might have to pay more fees. If you’re just looking for a place to store your cash, but still want to get your cash anytime, a checking account might be for you.
Make sure to look at all the fees involved before making your choice. Unlike with savings accounts, Banks make their money from checking accounts through their fees. But, most of the time you can avoid these fees with some planning and awareness.
Plan out your expenses ahead of time
Savings accounts let you take out money 6 times a month. that’s about one or two times per week. If you can plan out all your expenses ahead of time during the week, you can easily stay under the 6 transaction limit. If you know your expenses ahead of time just withdraw that amount all at once ahead of time rather than in smaller, more frequent increments. This setup could work out if you were only paying off a small number of monthly bills.
Open a money market account
A money market account is like a savings account, but instead of the bank holding onto your money, your money is invested in a financial market. The main difference here is you can write a check from your money market account to pay your bills. Some of them even offer debit cards for you to use. They also give you a little bit more interest than a savings account.
Just a word of warning, there is still a six transaction limit per month like the savings account. They also usually have a higher minimum balance requirement to open an account and keep it open.
Conclusion
No you can’t spend money from a savings account whenever and however you want. You can take your money out of your account (with certain limitations), but many banks don’t offer debit cards or support bill payments from your savings account. Even if they did, these are still limited to 6 payments per month.
If you have a savings account, the bank expects you to keep that money in there for a long time. It’s how they make their money. In return for doing that, they can offer you higher interest rates and fewer fees than a checking account.
If you really insist on using a savings account to pay for things, you will have to withdraw your money ahead of time and stay under the six transaction limit per month according to federal law.
If the question you are asking is a philosophical one (whether I should or should not spend my savings money), check out my other post on financial tips to build wealth. I answer that question there.
Fun facts: used to lion dance in college, can speak 3 languages (sort of), can lift 400 lbs, once ate a chicken head.
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