I was thinking about the topic of multiple deposit accounts earlier in the week, and the Bank Simple demo that Fast Company posted yesterday prompted me to post.

Banks used to have a variety of reasons for offering separate savings products (I’ll include money market accounts in this bucket) including:

  • Ability to offer higher rates in exchange for restrictions on withdrawals
  • Lower deposit reserve requirements at the Fed
  • No PFM or other equivalent functionality for customers to set aside money for savings goals
  • Source of overdraft protection for customers

From the customer perspective, the separate savings account provided benefits including:

  • Higher rates
  • Ability to have money set aside to meet savings goals or cover emergencies and see that balance separately
  • Source of funds for overdraft protection
  • Ability to set aside money for the benefit of someone else (child’s savings account, for example)

The reserve requirements problem has largely been solved with automated deposit reclass functionality available in every core banking system I can think of. PFM tools are widely available. Having checking and savings combined in a single account would mitigate the need for overdraft protection.

So, unless there’s a legal reason customers would want money in a separate account (because the funds are actually a child’s, for example), why not just adjust the interest rate structure of checking accounts and put customers in a single transaction account? Customers can use the PFM tool to adjust money set aside for savings and see what’s left (which is the concept behind Bank Simple’s “safe to spend”). Some PFM tools allow multiple amounts to be set aside for different savings goals. Interest rate structures can be tiered with typical interest checking rates for lower balances and typical savings/money market rates in upper tiers.

Dealing with a single account where possible seems like a win for both the bank and the customer. I suppose the remaining hurdle is the historic differences in interest checking, savings, and money market rate tier structures and the fact that banks have enjoyed the spread on customers that don’t optimize their interest earned. Non-PFM users may have a hard time with the concept, too, but maybe there’s a way to get them to set aside the balance in online banking without them knowing they’re “using PFM” if they’re hesitant to do so.