Is This The Biggest Secret in Banking? Here's Why You Probably Have Too Much Money in Your Checking Account

Motley Fool

01 Apr

KEY POINTS

Keeping too much money in your checking account means you're likely missing out on hundreds of dollars in interest every year.
A high-yield savings account (HYSA) can earn you 50 to 60 times more interest than a regular checking account.
By moving extra cash into an HYSA, investing, or paying down debt, you can make your money work harder for you.

If you're like most people, you probably don't think twice about how much money is sitting in your checking account. It's safe, easy to access, and gives you peace of mind, right? But here's something your bank won't tell you: Keeping too much money in your checking account is costing you.

I used to make the same mistake. I liked seeing a big cushion in my checking account -- it made me feel financially secure. But then I realized I was missing out on hundreds of dollars in extra interest each year.

If you're sitting on more cash than you actually need for bills and everyday spending, it's time to make a change.

How much is too much in checking?

Here's a simple rule that helped me: Keep one to two months' worth of expenses in your checking account. Anything beyond that you need to move somewhere it can actually grow.

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Here's why:

Your money isn't earning much. The average checking account offers 0.07% APY or less.
Inflation is eating away at your cash. With rising prices, the money in your checking account loses value over time.

High-yield savings accounts (HYSAs) pay far more. Many offer 4.00% APY or higher, meaning your money could be earning 50 to 60 times more in an HYSA than a checking account.

Start earning potentially hundreds of dollars a year just by moving your cash to a LendingClub LevelUp Savings account -- apply here to open an account now.

So, where should you put your extra cash?

I get it -- moving money around can feel like a hassle. But trust me, it's worth it. Here's where I put my extra funds:

1. High-yield savings account (HYSA)

This was a game-changer for me. With an HYSA, my savings started earning 50 to 60 times more than what my checking account paid. And the best part is that I could still access my money anytime I needed.

2. Investments for long-term growth

Once I had my emergency fund in place, I started putting extra cash into stocks and ETFs. Historically, the S&P 500 has returned an average of about 10% annually. With some patience, the stock market is still the best place to save for things like retirement.

3. Paying down debt

If you have credit card debt, extra cash in checking is wasted. I used some of my excess to knock out high-interest debt, and it saved me way more than I'd ever earn in a savings account.

Take action: Move your money and earn more

I wish I had made the switch sooner. If you have extra money just sitting in checking, it's time to move it to a high-yield savings account where it can actually grow. Many online banks make the process easy with high APYs, no fees, and quick transfers.

Compare the best high-yield savings accounts today and find one that fits your needs. Trust me, once you start seeing those higher interest earnings roll in, you'll wonder why you didn't do this sooner.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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