Your checking account might be costing you money—discover smarter alternatives!
Keeping excess cash in a checking account is not just unproductive; it’s a missed opportunity. While it feels safe to have a cushion of cash available, the reality is that the average checking account interest rate hovers around a measly 0.07%. This results in minimal earnings, impacting your financial growth. Fortunately, there are better ways to utilize your surplus funds, including moving them into high-yield savings accounts that offer significantly higher returns.
How Much Money Should You Keep in Your Checking Account?
A good guideline for managing your finances is to keep one to two months’ worth of essential expenses in your checking account. This avoids letting too much money remain in a low-interest setting while ensuring you can easily cover your bills. Typical essential expenses include:
- Rent or mortgage
- Utilities
- Insurance payments
- Groceries
- Entertainment
For example, if your monthly expenses total $3,500, maintaining a balance between $3,500 and $7,000 in your checking account is ideal. This approach allows you to manage your expenses without needing to tap into excess funds lying idle.
The Hidden Cost of Excess Cash in Your Checking Account
The dangerous truth about keeping excessive cash in your checking account lies in lost potential earnings. With the average checking account yield at just 0.07%, a balance of $5,000 earns approximately just $3.50 in a year. Conversely, if you transfer that same money into an HYSA boasting a 4.50% APY, you could be looking at annual earnings of around $225—without any risk involved.
Thinking of how to make your cash work for you? Explore a list of the best FDIC-insured savings accounts available today to maximize your returns and potentially earn hundreds more annually.
Where to Allocate Your Extra Cash
If you've got extra money sitting idle in a checking account, consider transferring it into one of the following financial instruments designed for growth:
1. High-yield savings accounts (HYSA)
- These accounts offer easy access to your funds while providing returns that can be more than 60 times greater than those of a typical checking account. They are particularly useful for creating:
- Emergency funds
- Vacation savings
- Home repairs or larger purchases
- Every day you delay could be costing you interest, so check out our recommendations for the best high-yield savings accounts.
2. Certificates of Deposit (CDs)
- If you know you won’t need the money for an extended period, consider investing in a CD. These often offer similar interest rates to HYSAs, albeit with the trade-off that your money is locked up for a specified term. The advantage? You guarantee your interest rate since it won't drop over time.
3. Investment Accounts
- Exploring investment options such as a Roth IRA, brokerage account, or 401(k) can help you grow your wealth over the long term. Historically, the average return via investments in the S&P 500 Index hovers around 10% annually, significantly outperforming any checking account.
Make the Switch: Maximize Your Money
If you've been allowing excess cash to accumulate in your checking account, it’s time for a change. Switching to a high-yield savings account or investing in a CD or retirement fund can enhance your financial growth effortlessly. Managing your funds wisely means less idle cash, more interest earned, and a secure financial future. Visit our listings today for the best high-yield savings accounts, understand the certificates of deposit benefits, and choose the best investment accounts growth strategies to elevate your savings.
Why let your hard-earned money sit idle when it can be actively working toward your financial goals? Optimize your strategy today and start experiencing the rewards of informed financial decision-making.