If you’re like many of us, you have a hard time making decisions. When placed in a situation where an important choice needs to be made, you beam at the idea of having the “best of both worlds.”
And hey, there really are some best of both world solutions that work. The spork, for example, is a quintessential best of both worlds fix. And cutlery advocates everywhere revel in the opportunity to transition from soup to salad without having to pick up a different utensil.
Fortunately, smart multi-functional solutions aren’t limited to the cutlery realm. There are plenty of hybrid products in the finance world, too. Because sometimes, managing your money on a day-to-day basis requires a balance that a one-size-fits-all product doesn’t quite achieve.
On this note, let’s talk a little bit about hybrid accounts—what they are, who might need them, and how the definition of a “hybrid account” might vary between financial institutions.
Defining the Hybrid Account
There are a variety of bank accounts available out there to consumers—the options can feel pretty overwhelming. And the type of accounts people are drawn to will depend on their financial situation, goals, and how they choose to organize their finances.
A hybrid account is one that combines the perks of a checking account with features of an interest-bearing savings account. Instead of linking your checking and savings account, they’re basically functioning as one cohesive account.
A hybrid account allows access to your money on a day-to-day basis, like a checking account would. But on the flip side, it allows your money to gain interest the way it might in a long-term savings account.
Of course, every company is different, and each might have a different approach to crafting a “hybrid account.” But the main gist of a hybrid account is that it’s a multi-functional account that bears some resemblance to a day-to-day checking account and a long-term savings account. (Cue, the Hannah Montana “Best of Both Worlds” song.)
Different Types of Accounts
To understand what can make a hybrid account a useful tool, it’s helpful to first understand the features and pros and cons related to traditional checking and savings accounts.
Let’s first take a look at checking accounts, which allow you to deposit money, write checks, or use a debit card to pay for goods and services. There are typically no withdrawal limits, and you can often link a checking account to other accounts and credit cards. It might be the account you use to pay recurring bills each month, like a car loan or student loan payment.
Banks pay you interest on the money that sits in your checking account. However, regular checking account interest rates are typically low, with an average rate of 0.06% .
These rates don’t always catch up with the current inflation rate, which is about 1.6% . That means your money is actually depreciating in value while it sits in the account—long term, this may not make checking accounts a particularly good place to park a lot of cash. Checking accounts may also charge fees for the services they offer, such as monthly maintenance fees.
High-Interest Savings Accounts
Savings accounts are another type of deposit account that you can open with your financial institution of choice. They usually earn some interest , especially high-interest savings accounts. High-interest savings accounts are an alternative to traditional accounts, which may sometimes offer interest rates of 2% or more. Higher-interest savings accounts can help you beat inflation so your money doesn’t lose value by growing at a slower rate than inflation.
Savings accounts are generally appealing because they are a separate place to store money you don’t necessarily want to use on day-to-day expenses. For example, it could be a good place to save for emergencies, or even to save for a vacation or a move across the country.
However, there are some downsides to high-interest savings accounts, too. They sometimes don’t allow consumers to use for direct payments. They are a place to store liquid assets, but there may be restrictions on the number of savings account transactions you initiate every month.
High-interest savings accounts often come with limitations such as a balance cap that limits the amount of money on which you can earn a high rate. If you’re considering this as an option, you may want to look closely at the fine print when choosing a high-yield checking or savings account.
Hybrid Accounts: the Details
Hybrid accounts will often take benefits from checking and savings accounts and combine them into one account. A hybrid account may allow you to use checks or a debit card for day-to-day transactions, while still offering the interest rates typically associated with a savings account. Hybrid accounts are often more likely to be offered by online institutions than traditional brick and mortar banks.
You may be wondering how this is possible and why all banks don’t offer similar products. The answer lies in the fact that traditional brick and mortar banks must pay for their storefront locations, the people who staff them, and ATMs.
They do so by charging fees and paying lower interest rates. Online financial institutions that don’t offer ground services can often afford to drop fees and pay higher rates while still offering services like checking and debit cards.
Introducing SoFi Money
SoFi Money® is a cash management account where you can save, spend, and earn all in one product. You can use it for day-to-day expenses, and there are no account fees. You can also use any ATM in the world that accepts Mastercard and we’ll reimburse all of your ATM fees (fee structure is subject to change).
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SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC . Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.