Can You Get a Debit Card on a Savings Account?
It’s very common to wonder whether you can get a debit card for your savings account. After all, debit cards are a convenient way to make withdrawals from ATMs or to purchase goods. Though most people use their checking account’s debit card, having one from your savings account would be a good backup.
This article will discuss whether savings accounts offer debit cards and good alternatives to savings accounts.
The Difference Between an ATM Card and a Debit Card
Before discussing whether savings accounts offer debit cards, it’s important to define what a debit card is. The terms debit card and ATM card are often used interchangeably, but they actually refer to somewhat different things.
A debit card is the type of card that most people think about when they use either term. When you open a checking account, your bank will provide you with one. You can use the debit card to make purchases at stores. You can also use your debit card to make transactions at ATMs.
ATM cards are less common, but look very similar to debit cards. Unlike debit cards, they cannot be used to make purchases from stores. While debit cards have the MasterCard or Visa logo on them and operate on those payment networks, ATM cards do not work with either network. Instead, ATM cards can be used only for making transactions at ATMs. In a way, they’re less fully-featured debit cards.
Savings Accounts Don’t Offer Debit Cards
Savings accounts are not designed to serve as a transaction account. They’re designed to be long-term storage for your excess cash. For this reason, savings accounts do not offer debit cards or the ability to write check against them.
In fact, federal law prohibits the number of remote withdrawals that you can make from a savings account in a single statement. If you make more than six withdrawals or transfers from a savings account by phone or online, you’ll have to pay a fee. If you could use a debit card to make purchases using your savings account’s balance, it’d be easy to rack up these fees.
ATM Cards Are Possible
What Savings accounts might offer is the option to get an ATM card. You can use the ATM card to make transactions on the account at any ATM on the bank’s network. Depending on the bank and the ATM, that includes deposits, withdrawals, and transfers.
One good thing to note is that ATM transactions don’t count against the six-transaction-per-statement limit. You can make unlimited ATM transactions without paying an excessive transaction fee unless your bank otherwise charges ATM fees.
This makes savings accounts that come with ATM cards very convenient for people who often need cash on-the-go.
Is a Money Market Account a Good Alternative?
The fact that you cannot get a debit card for a savings account can be a downer. Savings accounts pay much more interest than checking accounts do, so it’s understandable to want to keep as much money as possible in your savings account. If you need to keep some in a checking account to handle day-to-day spending, your missing out on potential earnings. If you want an account that combines aspects of checking and savings accounts, consider a money market account.
What is a Money Market Account?
A money market account is a special type of savings account. It offers the flexibility of a checking account with the earning power of a savings account.
Checking-account features that you could find with a money market account include:
- Online bill pay
- Debit card purchases
Money market accounts offer interest rates that are usually equal to or higher than savings account rates. However, they tend to require higher minimum balances to earn the advertised APY. And, they're likely to have higher monthly fees.
When you deposit money in a savings account, the bank takes your balance and pools it with the money deposited by its other customers. It then uses that pool of cash to fund the loans it makes to its borrowers. Your savings balance helps other people get car loans, mortgages, and personal loans.
Your deposits into a money market account allow the bank to earn interest on these loans. Part of these earnings goes into paying interest toward your account balance.
Potential Fees and Limits
Just like any other bank account, money market accounts charge fees. While you can find money market accounts that charge fewer fees, there are some you should pay special attention. One common type of fee is the monthly maintenance fee. Many accounts waive this fee if you maintain a certain minimum balance. Make sure you choose an account with a minimum balance you can maintain.
Money market accounts might also charge fees when you order new checks or make transactions at ATMs outside the bank’s network. If you’re going to make a lot of transactions against the account, watch out for these fees.
The most important fee to pay attention to is the excessive transaction fee. Federal law mandates that all banks charge a fee for each transaction made after the sixth in a statement cycle. Any withdrawal or transfer initiated by phone, online, or with a check counts against the limit. In-branch and ATM transactions are exempt from this limit.
Is a Money Market Account Insured?
When you’re shopping around for a money market account, make sure not to confuse it with a money market fund. Despite their similar names, they are very different.
Money market funds are higher risk because the money is invested in both Treasuries and commercial paper. They may earn slightly more interest, but they have no FDIC protection. It’s rare for money market funds to “break the buck” and lose value, but it has happened in the past. If it happens to you, you’ll be out of luck because the account isn’t insured.
The good news is that most money market funds are offered by brokers rather than banks, so it’s hard to confuse them. Still, the similarity in name and function makes it worth pointing out to ensure you avoid making a potentially costly mistake.
How FDIC insurance works
Given that the bank is investing your money, it’s understandable to be worried about the safety of your cash. Rest assured that your money is safe because money market accounts are insured by the Federal Deposit Insurance Corporation. Money market accounts are available at most banks and fully insured by the FDIC. You cannot lose money in a money market account, even though the bank might invest the balance in low-risk bonds.
The FDIC was founded in the wake of the Great Depression. Its stated goal was to restore confidence in the U.S. banking system. To accomplish that goal, the FDIC insures bank accounts, up to $250,000 per account type, per depositor at a bank.
What that means is that you cannot lose the money you deposit in a money market account. So long as you remain below the $250,000 the FDIC will fully insure you. If the bank closes or is unable to return the money to you, the FDIC will reimburse you for the amount lost.
How to Choose the Right Money Market Account
Since most banks offer money market accounts, you have plenty of options to choose from. You should always shop around to make sure that you get the best deal possible on your money market account. Depending on how much you intend to deposit in the account, the difference between a good and bad choice could be hundreds of dollars.
When you’re comparing money market accounts, consider these factors:
- Minimum deposit requirements
- Maintenance and other fees
- Interest rate
- Convenience of ATMs and branches
Money market accounts combine the benefits of both checking and savings accounts. The only downside is the limit on debit transactions and checks. If you don’t expect to make many transactions, but want the option just in case, a money market account is a good choice for you.