Linked Transfer Account

What Is a Linked Transfer Account?

A linked transfer account is when accounts held by an individual at a financial institution are associated with one another to empower the transfer of funds to and from one another. The most common linked transfer accounts are from savings accounts to checking accounts or credit card accounts. The purpose of utilizing linked transfer accounts is to keep away from interest charges or punishments on overdrafts by utilizing the funds stopped in a savings account.

Understanding Linked Transfer Account

For instance, say you have a checking account with a balance of $1,500 for your month to month expenses, a credit card with a credit limit of $2,000, and a savings account that pays you annual interest of 2% and has a balance of $10,000. The interest rate for the overdraft facility on the checking account is 7%; surpassing the limit on your credit card would result in a $50 penalty plus interest at 20%.

You set up linked transfers that would consequently (a) transfer funds from your savings account to your checking account in the event that it is overdrawn, and (b) transfer funds from your savings account to your credit card account to pay off the card balance at month-end or on the other hand assuming that you surpass the credit limit prior to month-end.

Accept you have heavy expenses for holiday shopping in December and spend $2,500 from your checking account and charge $3,000 to your credit card. Luckily, your foreknowledge in setting up the linked transfer accounts would save you a bundle.

In the event that you didn't have the linked transfer accounts in place, the overdraft on the checking account would cost you $5.83 in month to month interest (for example {$1,000 x 7%}/12), while surpassing the limit on your credit card would cost you $50 + $50 in month to month interest (interest assumed on the full $3,000 card balance), for a total of $105.83.

Be that as it may, by utilizing the linked transfers from your savings account, you keep away from the $5.83 interest on the checking account overdraft, plus the $100 penalty and interest on the card balance. Paying off the card balance of $3,000 in full, plus transferring $1,000 to the checking account, would drain the savings account by $4,000, bringing about the lost interest of $6.67. Yet, that is a small price to pay, compared to the $105.83 it would cost in the event that your accounts were not linked.

Overdraft Protection

Regularly, an overdraft happens when an account holder pulls out more than he has from his checking account. At the point when this occurs, the individual or business is charged a NSF fee (Non-adequate Funds) or overdraft fee, which midpoints $35 per transaction. Furthermore, he might be charged an overdraft fee of, say $30, for supporting a debit transaction that surpasses his accessible funds.

An account holder who wishes to safeguard himself if he runs short of funds eventually may opt for overdraft protection. Overdraft protection is, in effect, a loan that can be consequently drawn upon in the event that an account has insufficient funds.