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Can You Have Too Much Money in Your Checking Account?

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Opening a current account it is one of the first steps you take on your personal financial journey.

With a checking account, you can deposit your checks directly into your account, your money is safe, and your funds are easily available for all your bill payment and spending needs.

But before you collect all the income in your first bank account, there are several reasons why there should be no account in your current account everything your money.

“Have you ever heard your grandmother say, ‘Don’t keep all your eggs in one basket?'” He says. Gordon Achtermann, A Virginia-based CFP Your best way of financial planning. “Well, that applies perfectly to the current account.”


Here’s why you shouldn’t keep all your money in a checking account

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“The current account is very good at what it does,” adds Achtermann. “But it’s just designed to do one thing. It serves as a place to store your money you need to pay this month’s bills, plus a supplement to spend on yourself. “

Scott Cole, A CFP based in Alabama Cole, financial planning and wealth management, suggests thinking of the current account solely as a “channel through which money enters and leaves quickly.” For this reason, the money in your account does not have to be too much more than what you need to cover the planned expenses.

A budget can provide a snapshot of your current cash flow. By writing down your basic expenses (think rent, mortgage, utilities, insurance, transportation, and food), with a note of extra spending (vacations, travel, entertainment), you can see how much money you should allocate to your checking account – and therefore how much you can take out to put somewhere else.

Cole also warns that keeping too much money in a current account leads to an increase in expenses, so much so that they end up eating up all your income.

“When we keep too much in check, it tempts us to spend more on our current needs and wants, to the detriment of our long-term needs and wants,” Cole says.

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Where to put that excess cash from your checking account

A checking account is best used as a repository for the money you use on a daily basis, but for all other purposes there are better places for your money. On the same subject : The request could not be satisfied.

Here’s where you can put extra money instead of a checking account:

On a high-yield savings account

For the money you want to save for future use or emergencies, put that cash in a high-yield savings account where he can earn slightly more interest than he would sit on a current account. Cole points out that there are opportunity costs while maintaining large control balances, beyond the temptation to spend. High-yield savings ensure you don’t miss out on higher earnings.

“Maybe not more than before with such low interest rates, but still, if a high-yield savings account earns 0. On the same subject : 4 Ways a Roth IRA Is Icing on the Retirement Cake | Personal-finance.5% [APY] and your check earns nothing, so it’s something – and something is better than nothing, especially when it comes to money, ”Cole says.

The best high-yield savings accounts

Top rated high yield savings accounts offer above-average APY for all customers (regardless of status) FDIC secured, have zero monthly maintenance fees and low (or no) minimum balance requirements.

We recommend Marcus by Goldman Sachs High Yield Online Savings free of charge and easy mobile access. It is the simplest savings account to use when all you want is to grow your money with zero tied terms.

On CDs

If you’ve already accumulated a few thousand dollars in emergency savings, consider putting in half that savings CDs, suggests Achtermann. With a CD, you have the opportunity to earn a higher interest rate in exchange for keeping the tied funds for a certain period of time, and the expiration dates range between three months and five years. On the due date of your CD or when your expiration date expires, you will be refunded, with interest earned over time.

The best CDs

Top rated CDs offer APYs higher than the national average, insured by the FDIC, have zero monthly maintenance fees (typically) and low minimum deposits that require $ 1,000 or less to open an account.

If you can keep your money intact for five years, we recommend it A five-year high-yield CD by Ally Bank because interest rates are combined daily and there is no minimum deposit to open an account. Ally has too variety of CD options, including a price increase CD, No Penalty CD and Select CD if you are looking for something other than a five-year bill.

In the market

Once you set aside a stable amount of savings and zero remaining debt with high interest (such as credit card debt), invest the rest of the excess cash from your current account.

Achtermann suggests to novice investors to take care Vanguard, more precisely Vanguard’s fund of total stock exchange indices (VTI). This fund monitors the total U.S. market, including large, medium, and small capitalization capital. It is passively managed and the cost ratios are extremely low, 0.03%. “For someone who is 20 years old or just starting to invest, it’s the only fund to start with,” he adds.

An IRA or Roth IRA they are also good options for those who want to invest for retirement and want to take advantage of many tax breaks offered by the bills.

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How much is too much in your checking account?

While the exact amount of money consumers should keep in check really depends on each individual’s cash inflows and outflows, Cole provides general guidelines.

For those who are more disciplined about their discretionary expenses and are not prone to overdrafts, just keep the exact amount of money needed to cover the current month’s expenses. If your bank does not require a minimum balance, you do not have to worry about certain thresholds.

On the other hand, if you’re prone to overdraft fees, add a little pillow for yourself. Even with a pillow, Cole recommends not keeping more than two months of living expenses in your checking account.

Editorial note: The opinions, analyzes, reviews or recommendations expressed in this article are the opinions of the Select editorial staff only and have not been reviewed, approved or otherwise approved by any third party.