The Mint app has shut down as of Jan. 1, 2024. For alternatives, check out CNBC Select's ranking of the best budgeting apps.
A checking account and a savings account are two basic, but very important, accounts for managing money. And while there isn't any one "correct" way for an individual to manage the money in their checking and savings accounts, there are some general rules of thumb that can help you figure out how much money you should have in each account.
"Like many Americans, you may default to leaving extra funds in a traditional checking or savings account," says Dan Stampf, a CFP® and Vice President of Advisory Solutions for Empower. "Maybe you haven't decided how to allocate it to investment accounts. Perhaps you're stowing away money for a rainy day or emergency fund. Or you could be building up savings for a short-term goal like funding a wedding or a vacation."
It's important to note that you're essentially losing money if you allow that cash to just sit in a low-yield checking account, as the value of your money is being eaten away by inflation and you're missing out on higher interest payments from a high-yield savings account. This is why high-yield savings accounts are generally recommended as a vehicle for keeping savings, including your emergency fund.
Some checking accounts, like the Ally Bank Spending Account (Ally's checking product) or the Capital One 360 Checking® accounts do offer slightly higher interest rates compared to traditional checking accounts, but the interest is still lower than what high-yield savings accounts offer.
How much money should you keep in a high-yield savings account?
Of course, you do want to make sure you're investing — and not only saving — so you can reach long-term goals like retirement. So you do have to draw a line between how much you should invest versus keep in a savings account.
"Everyone's financial situation is different and the amount of cash you have on hand will depend on your life stage and savings goals," Stampf says. "As a general rule, consider aiming to have six to 12 months worth of liquid cash or cash alternatives, so you can withdraw from those if needed without touching your [investment] portfolio."
Avoid over-saving
Stampf also cautions against over-saving for emergencies since keeping too much cash on hand could mean not having enough of your money invested, which could potentially undermine your retirement goals or other investing goals.
You can avoid over-saving by targeting a specific number for your emergency fund. Maybe a fully funded emergency account for you means having six months' worth of necessary expenses saved; take your monthly expenses and multiply that by six to find your target amount. You might also consider using a budgeting app, like Mint or Empower, to help you figure out what your total monthly expenses look like.
And of course, a high-yield savings account is also the best way to save for large expenses that you foresee having to make in the near future (1–3 years). It's prudent to make sure you save for these expenses on top of your fully-funded emergency account money. And the higher interest rates let you grow your balance just a little quicker. Select ranked the Marcus by Goldman Sachs High Yield Online Savings as the best account for no fees.
Marcus by Goldman Sachs High Yield Online Savings
Goldman Sachs Bank USA is a Member FDIC.
Annual Percentage Yield (APY)
4.40% APY
Minimum balance
None
Monthly fee
None
Maximum transactions
At this time, there is no limit to the number of withdrawals or transfers you can make from your online savings account
Excessive transactions fee
None
Overdraft fee
None
Offer checking account?
No
Offer ATM card?
No
Terms apply.
TheSoFi Checking and Savingsalso stands out since it offers a welcome bonus after you setup and receive direct deposit payments. You can earn up to $300 with direct deposit.
SoFi Checking and Savings
SoFi Bank, N.A. is a Member FDIC.
Annual Percentage Yield (APY)
Members with direct deposit earn 4.60% APY on savings, no minimum balance needed. Members without direct deposit earn 1.20%APY on savings balances, and everyone earns 0.50% APY on checking balances.
Welcome bonus
Earn a $300 welcome bonus when you direct deposit a total of $5,000 or more within 25 days of your first direct deposit. Get a $50 welcome bonus when you direct deposit between $1,000 and $4,999.99 within 25 days of your first direct deposit.
Fees
No monthly fee and no excessive transaction fees.
No-fee overdraft protection
No-fee Overdraft Coverage up to $50 for SoFi members with $1,000 or more in total monthly direct deposits. Purchases exceeding $50 are declined.
Offer ATM card?
Yes, this account offers a debit card that allows purchases and ATM withdrawals. Terms apply.
Offer checking account?
Yes, bundled with savings account.
Maximum transactions
Up to 6 free withdrawals or transfers per statement cycle. Transaction amount limits apply.
Pros
- A welcome bonus of $300 with direct deposit totaling $5,000 or more within 25 days of your first direct deposit. Or a welcome bonus of $50 with direct deposit totaling between $1,000 and $4,999.99 within 25 days of your first direct deposit
- Strong 4.60% APY with direct deposit
- No minimum balance or deposit needed
- No monthly fees
- Comes with checking account and ATM access
- Receive your pay check in your account up 2 days early automatically when set up direct deposit
- Save change automatically with Roundups and set savings goals with Vaults
- No foreign transaction fees
- FDIC insurance up to $2 million through the SoFi Insured Deposit Program
Cons
- Non-direct deposit APYs are low compared to other high-yield savings accounts
- No reimbursem*nt for out-of-network ATM fees
- No physical branches
"Stashing money in a high-yield savings account for large, near-term purchases (such as a home down payment, new car, or remodeling) can prove beneficial by ensuring the funds are there when you need them and earning a modest amount of interest in the meantime."
Read more about Select's picks for the best-high yield savings accounts
Bottom line
A high-yield savings account can sometimes be a happy medium between investing for the long-term and keeping liquid cash on hand for shorter-term large expenses, but it's still important to avoid over-saving. ]
Stampf recommends keeping six to 12 months' worth of expenses in a high-yield savings account for easy access to cash in case of an emergency and saving for larger expenses that are are coming in the short term, like buying a home. Of course, you'll want to also consider your stage of life and your needs when determining how much money to keep in a high-yield savings account.
Read more
These top high-yield savings accounts could earn you over 15X more money than the national average
A financial expert shares her best hacks for saving money while holiday shopping this year
Here's how much money you should be saving from every paycheck
Weddings are more costly than ever: Here are 9 ways to save money on your wedding expenses
* SoFi members with direct deposit can earn up to 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.60% APY for savings. Members without direct deposit will earn up to 1.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 12/12/23. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Information about the Ally Bank Spending Account has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.
Ally 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.
