Beyond the rate: avoiding NSF charges and managing chequing and savings account cash flow

Reflection of a toonie

Most chequing accounts pay little to no interest. Savings accounts can pay much higher interest, but don’t have the features that chequing accounts do. How do you maximize the features and convenience in your day-to-day banking without sacrificing earned interest?

You can choose a savings account that pays the highest interest possible, but to get the most out of your hard-earned money, you need to manage your both accounts: specifically, the cash flow between the chequing and savings accounts.

Who needs a chequing account?

One approach is to forgo a chequing account. Is having separate chequing and savings accounts an antiquated concept that banks perpetuate simply because they can? At EQ Bank, there is no chequing account — only a savings account (the EQ Bank Savings Plus Account) that provides some features more traditionally associated with chequing accounts, such as free bill payments and unlimited Interac e-Transfers®. You can also do pre-authorized debits and make external transfers to other bank accounts. However, EQ Bank does not offer a debit card, ATM/ABM access, or cheques, at least not yet.

Free internal transfers

At Motive Financial, its Cha Cha Chequing Account also offers free and unlimited Interac e-Transfers but is a more fully-featured chequing account. At Motive Financial and most other financial institutions, you can make unlimited and often instant transfers between chequing and savings accounts at the same bank. That way you can keep as much money as possible in your savings account, and only move cash to the chequing account when you need to, for example, write a cheque. But it can be a hassle to do these transfers even if it’s just a few more clicks. And you can get hit with NSF charges if you don’t keep enough money in your chequing account and forget about an outstanding, uncashed cheque. This requires careful management. While Motive Financial charges no chequing account monthly fee, there are other financial institutions that make you keep a minimum balance in your chequing account in order to waive the monthly or transaction fees — requiring even more management and lost interest.

Overdraft and coverdraft

If you don’t want to manage the cash flow between your chequing and savings accounts, here are 2 ways to make sure you’re automatically covered. The first is overdraft protection, which is essentially a line of credit attached to your chequing account. If you make a debit or withdrawal transaction from your chequing account that is more than the cash in the account, the bank automatically loans you the difference. Overdraft protection can have a monthly fee on top of the interest it charges you until you pay back the loan. Overdraft protection is offered at Alterna Bank, but Alterna also has something slightly different that you can set up with a 1-time phone call: coverdraft protection. Coverdraft protection is not a loan, but uses the savings account to back the chequing account. If you make a debit or withdrawal transaction from your chequing account that is more than the cash in the account, it will automatically “sweep” the difference from your savings account (presuming that you have enough cash in the savings account), preventing you from being hit with an NSF charge.

Financial institution features can make it easier for you to manage chequing account cash flow, whether that’s doing away with a chequing account altogether; offering a convenient no-fee chequing account with free and unlimited transfers to and from a savings account; or preventing you from getting hit with accidental NSF charges. This can be more important and potentially save you more money than an account with a higher rate!

Got more tips to share? Join the discussion about paying bills from a savings account that prompted this article!