Here's why you shouldn't keep all your money in a checking account (2024)

Opening a checking account is one of the very first steps you take when starting your personal financial journey.

With a checking account, your paychecks can be directly deposited into your account, your cash is safe and your funds are easily accessible for all your bill-paying and spending needs.

But before you stockpile all your income into your first-ever bank account, there are a few reasons why your checking account shouldn't hold all your money.

"Have you ever heard your grandmother say, 'Don't keep all your eggs in one basket?'" says Gordon Achtermann, a Virginia-based CFP at Your Best Path Financial Planning. "Well, that applies perfectly to a checking account."

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

Your checking account is the best place to keep the money you frequently need, but that's it.

"The checking account is very good at what it does," Achtermann adds. "But it is only designed to do one thing. It serves as a place to keep your money that you need to pay this month's bills, plus your allowance for spending on yourself."

Scott Cole, an Alabama-based CFP at Cole Financial Planning and Wealth Management, suggests thinking of a checking account solely as "a conduit through which money comes in and quickly goes out." For this reason, the money in your account doesn't need to be too much more than what you need to cover your planned expenditures.

A budget can provide a snapshot of your recurring cash flow. By writing out your essential costs (think rent, mortgage, utilities, insurance, transportation and food), plus noting your ancillary spending (vacations, travel, entertainment), you can see just how much money you should allocate to your checking account — and thus how much you can take out to put elsewhere.

Cole also warns that keeping too much money in your checking account tends to lead to your expenses expanding, so much so that they eventually eat up all of your income.

"When we keep too much in our checking, it invites the temptation to spend in excess for our present needs and wants and to the detriment of our longer term needs and wants," Cole says.

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Where to put that surplus of cash from your checking account

A checking account is best used as storage for the money you use every day, but for all other purposes, there are better places for your cash.

Here's where to put your extra cash instead of your checking account:

In a high-yield savings account

For money you want to save for future use or emergencies, put that cash into a high-yield savings account where it can earn a bit more interest than it would sitting in a checking account. Cole points out that there are opportunity costs with keeping large checking balances, beyond just the temptation to spend. A high-yield savings makes sure that you aren't missing out on higher earnings.

"Perhaps not as much as it used to be with interest rates so low, but still, if a high-yield savings account is earning 0.50% [APY] and your checking is earning nothing, well that is something — and something is better than nothing, particularly when it comes to cash," Cole says.

The best high-yield savings accounts

Top-rated high-yield savings accounts offer an above-average APY to all customers (no matter your balance), areFDIC-insured, have zero monthly maintenance fees and low (or no) minimum balance requirements.

We recommend the Marcus by Goldman Sachs High Yield Online Savings for no fees whatsoever and easy mobile access. It is the most straightforward savings account to use when all you want to do is grow your money with zero conditions attached.

In CDs

If you've already built up a few thousand dollars in emergency savings, consider putting half of those savings in CDs, suggests Achtermann. With a CD, you have a chance to earn a higher interest rate in exchange for keeping your money tied up for a certain period of time, with term lengths ranging between three months and five years. On the date that your CD matures, or when your term length is over, you get your money back, in addition to the interest earned over time.

The best CDs

Top-rated CDs offer APYs higher than the national average, areFDIC-insured, have zero monthly maintenance fees (which is typical) and low minimum deposits requiring $1,000 or less to open an account.

If you can keep your money untouched for five years, we recommend the Ally Bank Five-Year High Yield CD because it compounds interest daily and there is no minimum deposit to open an account. Ally also has a variety of CD options, including aRaise Your Rate CD,No Penalty CDandSelect CD, if you're looking for something other than a five-year account.

Read more

Here’s when you should put money in a checking account vs. savings account

In the market

Once you have a stable amount of savings set aside and zero outstanding high-interest debt (like credit card debt), invest the rest of your surplus cash from your checking account.

Achtermann suggests investor beginners look to Vanguard, specifically the Vanguard Total Stock Market Index Fund (VTI). This fund tracks the U.S. total market, including the large-, mid- and small-cap equity. It's passively managed and the expense ratios are a super-low .03%. "For someone in their 20s or just getting started investing, it's the one fund to start with," he adds.

An IRA or Roth IRA are also good options for those looking to invest for retirement and want to take advantage of the many tax benefits the accounts have to offer.

Read more

This 3-question checklist will help you determine when you’re ready to invest your money

How much is too much in your checking account?

While the exact amount of money consumers should keep in their checking really depends on each individual's cash inflow and outflow, Cole provides a general guideline.

For those who are more disciplined about their discretionary expenses and not prone to overdrawing their account, just keep the exact amount of money needed to cover that current month's expenses. Unless your bank requires a minimum balance, you don't need to worry about certain thresholds.

On the other hand, if you are prone to overdraft fees, then add a little cushion for yourself. Even with a cushion, Cole recommends keeping no more than two months of living expenses in your checking account.

Read more

6 tips for choosing the best checking account

Here are the best checking account bonuses

Information about Marcus by Goldman Sachs High Yield Online Savings has been collected independently by Select and has not been reviewed or provided by the banks prior to publication. Goldman Sachs Bank USA is a Member FDIC. Interest rate and Annual Percentage Yield (APY) are subject to change at any time without notice before and after an American Express® High Yield Savings Account is opened.

*American Express National Bank is a Member FDIC

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

Here's why you shouldn't keep all your money in a checking account (2024)


Here's why you shouldn't keep all your money in a checking account? ›

They also aren't a good place to store all your cash for these reasons: Low interest rates: Even the very best checking account pays less in interest than an online savings account or money market account. You want to keep most of your cash where it earns the most interest. A checking account is not that place.

Why shouldn t you keep your money in your checking account? ›

Risks of Keeping Too Much Money in Your Checking Account

One reason is that it isn't going to earn you much interest. The national average for interest-bearing checking accounts is 0.07% APY. Compare that to a high-yield savings account that can earn as high as 5.00% APY or more.

Why shouldn't you put all your money in the bank? ›

Keeping too much of your money in savings could mean missing out on the chance to earn higher returns elsewhere. It's also important to keep FDIC limits in mind. Anything over $250,000 in savings may not be protected in the rare event that your bank fails.

Should I leave all my money in a checking account? ›

Keeping one to two months' of expenses in checking can help you to stay ahead of monthly bills. You're also less likely to get stuck with overdraft fees, since you have a buffer in your account. Maintaining higher balances in checking can put you at a disadvantage if you're not earning any interest on your money.

Is it bad to keep all your money in one bank? ›

As long as that bank is FDIC-insured and your deposit doesn't exceed $250,000, you should be safe to do so. It might be worth it to maintain an account at a separate bank, however, just in case a bank error or accidental account freeze results in a loss of access to your money for a time.

Why money should not be kept in bank? ›

One of the major reasons why keeping a lot of money in a savings account might not be a wise decision is the change in repo rates. Banks often change their interest rates based on repo rates and it directly impacts the savings accounts.

Why should you not leave all your money in a savings account? ›

Also, a savings account won't give you any sort of tax break on your money. The interest you earn on your money will be taxed at the same rate as ordinary income -- the highest rate you're subject to. A better bet is to save for retirement in an account like an IRA, where your contributions go in tax-free.

Why shouldn't you save all your money? ›

Lower potential returns compared to investing. Potential for savings accounts to fail to keep up with inflation, eroding your purchasing power over medium- and long-term time horizons.

Can banks seize your money if the economy fails? ›

Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.

Is it bad to have too much money in your bank account? ›

In the long run, your cash loses its value and purchasing power. Another red flag that you have too much cash in your savings account is if you exceed the $250,000 limit set by the Federal Deposit Insurance Corporation (FDIC) — obviously not a concern for the average saver.

Do millionaires keep their money in checking account? ›

“Millionaires' checking accounts are all over the place,” Thompson said. “Some clients will only keep enough to pay for immediate expenses (e.g., $10,000) and others will have $150,000 in checking on any given day.”

How much is too much money in a checking account? ›

Unless your bank requires a minimum balance, you don't need to worry about certain thresholds. On the other hand, if you are prone to overdraft fees, then add a little cushion for yourself. Even with a cushion, Cole recommends keeping no more than two months of living expenses in your checking account.

What's the most money you should keep in a checking account? ›

The general rule of thumb is to try to have one or two months' of living expenses in it at all times. Some experts recommend adding 30 percent to this number as an extra cushion.

Why you should not keep all your money in a checking account? ›

Money in a checking account is easy to access, and keeping balances above the bare minimum can help you avoid monthly maintenance fees. But having a bloated checking account means you're missing out on higher returns in a savings or retirement account.

Where do millionaires keep their money? ›

Cash equivalents are financial instruments that are almost as liquid as cash and are popular investments for millionaires. Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills. Some millionaires keep their cash in Treasury bills.

How much is too much in savings? ›

So, regardless of any other factors, you generally shouldn't keep more than $250,000 in any insured deposit account.

Why are you not supposed to save your money in the bank? ›

You don't want to keep your money at the bank because: It just degrades in value due to inflation. Your money isn't “working” for you. You can invest your money into growth assets rather then it sitting there.

Is there any disadvantages of keeping money in the bank? ›

Savings account benefits include safety for your savings, interest earnings and easy access to your money. However, savings accounts may have drawbacks, such as variable interest rates, minimum balance requirements and fees.

Is it safe to leave money in bank account? ›

As long as your deposit accounts are at banks or credit unions that are federally insured and your balances are within the insurance limits, your money is safe. Banks are a reliable place to keep your money protected from theft, loss and natural disasters. Cash is usually safer in a bank than it is outside of a bank.

Is it bad to have money sitting in the bank? ›

And there's virtually no risk of losses if the money is in an FDIC-insured bank account. If you don't have an emergency fund, you should probably build one even before putting your savings money toward retirement or other goals.

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