What Is a Salary Account, and Should You Open One?
Some employers may prefer to pay you through a salary account. Read on to find out if it's the right option for you.
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Receiving automatic deposits into your bank account is a convenient and efficient way to get paid by your employer. Most people use their personal checking or savings accounts to accept these payments, but some employers set up another type of account, called a salary account, to pay their employees.
Here's what that account is, why you may or may not want one, and what to ask yourself to determine if you should open a salary account.
What is a salary account?
Salary accounts are a type of savings account that your employer opens up for you to deposit your salary payments.
They aren't very common in the U.S., but some businesses may use salary accounts because it's easier for them to manage salary payments to employees and add monetary bonuses or reimbursements.
While you have access to money in the account, the account isn't set up by you, and it's likely one of many individual accounts that a company's human resource department uses to pay employees.
Why you might want a salary account
There are many reasons why a salary account might be a good option for you if your employer offers one. Here are a few of the most common.
1. No minimum balance requirements
Unlike many other types of bank accounts, you're not required to have a minimum balance in a salary account. This means you can take out all the money in a salary account without worrying about fees.
2. Automatic savings
Because a salary account is a savings account, it may be easier for some people to build up savings by using one. For example, if you're part of a dual-income family, you can leave some of your pay in the salary account, eliminating the extra step of transferring that money to a separate savings account.
3. Potentially easier access to loans
It may be easier to access loans through the bank where your salary account is. For one thing, the bank already has your salary information, which can sometimes speed up the process. Some banks may also offer you a better interest rate.
Why you might not want a salary account
Salary accounts may not be a great choice for everyone. If you have the option to have your payments deposited into a salary account, here's why you may want to turn it down.
1. It may not have the best interest rate
Many savings accounts pay high interest rates right now, with some paying more than 4%. Salary accounts may not pay the same rates. So, if you're using a salary account to store your money, moving it to a traditional high-yield savings account may help your money grow faster.
2. The account is linked to your employer
Having any type of account tied to an employer can turn into a hassle. When I wanted to convert my old 401(k) to an individual retirement account (IRA), I had to track down a finance employee at my old job, get the necessary forms, and wait for them to complete some paperwork.
Salary accounts may be simpler than investment accounts, but once you leave your job it usually converts to a regular savings account. So you'll either need to close it or maintain it once you switch employers.
Should you open one?
Whether you should open a salary account depends on a few things. For one, if your employer pays all employees through this type of account, you may not have a choice where your payments are deposited.
However, if the salary account gives you better access to loans -- and you think you might need that financial option -- then it may be beneficial to have the salary account.
But if you're using the salary account strictly to save money, you may be better off opening up your own high-yield savings account to maximize your interest-earning potential.
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