Here's why you shouldn't keep all your money in a checking account (2023)

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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Consider a money market account to earn interest and still have easy access to your funds:

  • The Axos Bank High Yield Money Market Account requires a minimum $1,000 balance to open, but there are no monthly maintenance fees, and you have check-writing privileges in addition to access to your savings via a debit card.

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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.

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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.

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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.

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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.

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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 APY are subject to change at any time without notice before and after an American Express® High Yield Savings Account is opened.

(Video) Why You Shouldn't Keep All Your Money in The Bank

*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.


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

But they aren't a good place to store all your cash for two big 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.

Should you have all your money in a checking account? ›

How much money do experts recommend keeping in your checking account? It's a good idea to keep one to two months' worth of living expenses plus a 30% buffer in your checking account.

Is it okay to keep a lot of 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.

How much money should be kept 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. To determine your exact living expenses, track your spending over several months, including all bills and discretionary spending.

Is there a limit to how much you can keep in a checking account? ›

How much money can you put in a checking account? Generally, there's no checking account maximum amount you can have. There is, however, a limit on how much of your checking account balance is covered by the FDIC (typically $250,000 per depositor, per account ownership type, per financial institution).

How much money can you safely keep in a bank account? ›

The FDIC does this by insuring consumers' bank accounts. FDIC insurance applies to balances up to $250,000, per depositor, per account, at insured banks.

Is it better to have more money in checking or savings? ›

If you're just looking to pay for everyday expenses, a checking account is the way to go. If you're focusing on growing your money, a savings account is a better fit. Regardless of the account type you choose, make sure you pick one suited to your financial needs and goals.

How much cash can you deposit in the bank without being questioned? ›

A cash deposit of more than $10,000 into your bank account requires special handling. The IRS requires banks and businesses to file Form 8300, the Currency Transaction Report, if they receive cash payments over $10,000.

How much money can I deposit in the bank without being reported? ›

Banks must report cash deposits totaling $10,000 or more

When banks receive cash deposits of more than $10,000, they're required to report it by electronically filing a Currency Transaction Report (CTR). This federal requirement is outlined in the Bank Secrecy Act (BSA).

Should I keep more than 250 000 in one bank? ›

Anything over that amount would exceed the FDIC coverage limits. So if you keep more than $250,000 in cash at a single bank, then you run the risk of losing some of those funds if your bank fails. The good news is that bank failures are generally rare; there were only four bank failures in 2020.

What to do with money sitting in the bank? ›

What to do with extra cash
  1. Pay off debt. If you have a significant amount of debt, consider putting your extra money toward paying that down or off. ...
  2. Boost your emergency fund. ...
  3. Increase your investment contributions. ...
  4. Invest in yourself. ...
  5. Consider the timing. ...
  6. Go ahead and treat yourself.

Where do rich people keep their money? ›

Where do millionaires keep their money? High net worth individuals put money into different classifications of financial and real assets, including stocks, mutual funds, retirement accounts and real estate. There were 24.5 million millionaires in the U.S. in 2022. And only 21% of them inherited money.

Should I keep my money in the bank or at home? ›

It's a good idea to keep a small sum of cash at home in case of an emergency. However, the bulk of your savings is better off in a savings account because of the deposit protections and interest-earning opportunities that financial institutions offer.

How much money does the average person have in their bank account? ›

While the median bank account balance is $5,300, according to the latest SCF data, the average — or mean — balance is actually much higher, at $41,600.
How much does the average household have in savings?
Average U.S. savings account balance
1 more row
Dec 21, 2022

Do you have to keep a certain amount of money in your savings account? ›

The general rule is to have three to six months' worth of living expenses (rent, utilities, food, car payments, etc.) saved up for emergencies, such as unexpected medical bills or immediate home or car repairs. The guidelines fluctuate depending on each individual's circumstance.

Where is the safest place to keep your money? ›

Key Takeaways
  • Savings accounts are a safe place to keep your money because all deposits made by consumers are guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts.
  • Deposit insurance for savings accounts covers $250,000 per depositor, per institution, and per account ownership category.

Is money safer in checking or savings? ›

In and of themselves, savings and checking accounts are equally safe. However, if you were to pit the two against each other in a “battle royale” of the most secure accounts, your savings account would edge out checking. The reason? Your debit card.

What is better than putting your money in the bank? ›

High-Yield Checking Accounts

There are high-yield checking accounts that offer better interest rates than savings accounts. Some of these checking accounts offer up to a 2% annual percentage yield, in contrast to lower savings account rates.

What makes a cash deposit suspicious? ›

Financial institutions are required to report cash deposits of $10,000 or more to the Financial Crimes Enforcement Network (FinCEN) in the United States, and also structuring to avoid the $10,000 threshold is also considered suspicious and reportable.

How much money can I deposit in the bank without being reported 2023? ›

Depositing a big amount of cash that is $10,000 or more means your bank or credit union will report it to the federal government. The $10,000 threshold was created as part of the Bank Secrecy Act, passed by Congress in 1970, and adjusted with the Patriot Act in 2002.

How much money can you withdraw without suspicion? ›

Thanks to the Bank Secrecy Act, financial institutions are required to report withdrawals of $10,000 or more to the federal government. Banks are also trained to look for customers who may be trying to skirt the $10,000 threshold. For example, a withdrawal of $9,999 is also suspicious.

Is depositing $1,000 cash suspicious? ›

Depending on the situation, deposits smaller than $10,000 can also get the attention of the IRS. For example, if you usually have less than $1,000 in a checking account or savings account, and all of a sudden, you make bank deposits worth $5,000, the bank will likely file a suspicious activity report on your deposit.

Does the IRS monitor your bank account? ›

The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.

What is the $3000 rule? ›

Treasury regulation 31 CFR 103.29 prohibits financial. institutions from issuing or selling monetary instruments. purchased with cash in amounts of $3,000 to $10,000, inclusive, unless it obtains and records certain identifying. information on the purchaser and specific transaction.

How much cash can be kept at home? ›

How much cash can you keep at home? According to the rules of the Income Tax Department, you can keep any amount in your house, but if it is caught by the investigating agency, then you will have to tell its source.

Can I put 20k in my bank account? ›

No, you can deposit as much money in your savings account as you want. If you have $250,000 or less in all of your deposit accounts at the same insured bank or savings association, you do not need to worry about your insurance coverage — your deposits are fully insured.

How much money do millionaires keep in the bank? ›

How much money do rich people keep in cash? Studies indicate that millionaires may have, on average, as much as 25% of their money in cash. This is to offset any market downturns and to have cash available as insurance for their portfolio. Cash equivalents, financial instruments that are almost as liquid as cash.

How much money does the average person have in their checking account? ›

One commonly cited data point comes from the Federal Reserve Survey of Consumer Finances, which finds that Americans hold an average balance of $42,000 in transaction accounts. This average is skewed by people holding high balances, so it might be better to look at the survey's median balance figure, which is $5,300.

What is the 50 30 20 rule? ›

Our 50/30/20 calculator divides your take-home income into suggested spending in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment. Find out how this budgeting approach applies to your money.

How much does a wealthy person have in their bank account? ›

These are people with investable assets of more than $30 million, according to the 2021 Knight Frank Wealth Report.14 By comparison, high-net-worth individuals (HNWIs) have at least $1 million in assets.

How much does the average American have in their retirement account? ›

There are also signs that Americans may be increasing their retirement savings, as the average retirement savings increased by 13%: from $87,500 to $98,800, according to Northwestern Mutual's 2021 Planning & Progress Study.

How much does the average 40 year old have in savings? ›

Average Savings by Age 40

Americans at this life stage are reflected in Federal Reserve statistics covering people ages 35 to 44. The Fed's most recent numbers show the average savings for the age group that includes 40-year-olds is $27,900. The median savings is $4,710.

How much of your income should go to rent? ›

When determining how much you should spend on rent, consider your monthly income and expenses. You should spend 30% of your monthly income on rent at maximum, and should consider all the factors involved in your budget, including additional rental costs like renter's insurance or your initial security deposit.

Does 401k count as savings? ›

Your retirement account is not a savings account.

Despite the fact that retirement accounts are designed for long-term goals, it is relatively easy to access your money in the form of 401(k) loans and 401(k) hardship withdrawals.

What percent of income should go to housing? ›

The 28% mortgage rule states that you should spend 28% or less of your monthly gross income on your mortgage payment (e.g., principal, interest, taxes and insurance). To determine how much you can afford using this rule, multiply your monthly gross income by 28%.

Where is the safest place to keep cash at home? ›

Where to safely keep cash at home. Just like any other piece of paper, cash can get lost, wet or burned. Consider buying a fireproof and waterproof safe for your home. It's also useful for storing other valuables in your home such as jewelry and important personal documents.

Where do wealthy people put their money if not in the bank? ›

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 that they keep rolling over and reinvesting. They liquidate them when they need the cash.


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