Should I Direct Deposit Checking or Savings?

There are important benefits to getting your paycheck deposited directly into your bank account, including fast access to your money without having to make a dedicated trip to a bank branch or ATM. However, when you sign up for direct deposit, you’ll need to decide whether you want your company to put your money into a checking account or a savings account.

While checking and savings accounts are similar and you often have both accounts with the same bank, there are some important differences. Understanding those differences can help you make the decision about which account to use for direct deposit.

Consider Your Everyday Purchases

A checking account such as Fifth Third’s Momentum^® Checking Account is where most people keep the cash that they use for everyday purchases. Typically, when you open a checking account, it comes with a debit card you can use to withdraw funds at the ATM or to make purchases at a store, as well as a checkbook. There are no limits on how many times you can take money out of the account.

A savings account, on the other hand, is designed to hold funds typically needed for medium- or longer-term goals, or for emergencies. Most savings accounts do not come with a debit card or checkbook, so to access the cash in a savings account, you need to transfer the funds to another account or go to a bank to make a withdrawal.

Savings accounts typically have higher interest rates than checking accounts, meaning that over time the money in a savings account can earn a compounding return, especially during periods of rising interest rates.

Some banks charge account holders a fee if they make more than six withdrawals per month, but the Fifth Third Momentum^® Savings Account does not charge a fee for withdrawals. Momentum^® Savings does charge a $5 fee if you don’t have a linked, qualified Fifth Third checking account, the balance is below $500 or you don’t meet other qualifications.¹

Choosing Checking or Savings

As with many financial decisions, the answer to the question of where to make your direct deposit is "it depends." The right choice for you will reflect your current financial situation, your long- and short-term goals, and the terms of each account. Answering questions about your finances can help you determine whether to use checking or savings for your direct deposit.

1. Do You Need Cash for Monthly Bills?

If you’re planning to use these funds for regular, monthly expenses like rent or mortgage payments, utility bills, or student loan payments, you’ll probably want to put your direct deposit into a checking account. That way, you can easily pay your bills and have access to your money as needed.

2. Is This Money Going Towards a Long-Term Financial Goal?

If, on the other hand, you’re using these funds to build an emergency fund or to save for a bigger financial goal like a downpayment on a house or a new car, you may opt to have your direct deposit go into a savings account. Having it outside of your checking account may make you less tempted to use that money for other purposes. Plus, earned interest could help you make progress toward your goals more quickly than you would otherwise.

3. Can You Make a Split Deposit?

Many employers allow you to have your paycheck deposited into multiple accounts. That may be a good solution if you need some of the money for your monthly bills but also want to save for longer-term goals. You can either split your funds between the accounts evenly or determine a different distribution that makes sense for your financial situation. If, for example, you need most of your paycheck to cover your bills but you’re also working on an emergency fund, you might have 5% or 10% of your paycheck go into your savings account while the rest goes to checking.

Deciding whether your direct deposit should go into a checking or savings account depends on your personal financial situation and goals. Understanding how checking and savings accounts work and answering the above questions can help you make a decision that can put you on a path toward financial security.