The quick answer? Yes.
- You need money in a checking account to be able to pay bills as they come due.
- Since checking accounts often earn little or no interest, it’s not cost-effective to keep lots of extra cash in one.
- The best places to keep extra cash include savings accounts, CDs, and investment accounts.
Chances are your money is spread across different types of accounts. You might have money in a brokerage accountfor example, in which you invest for different purposes, and you could also have money for your retirement in an IRA.
In the meantime, you should make sure to keep some of your money away from investments, but rather in cash. This way your capital is protected.
Now, when it comes to the cash portion of your assets, you can turn to products like savings accounts, CDs and checking accounts to house your money. In fact, it is important to keep some money in a current account so you have a way to pay bills as they arise.
But there may come a time when you have too much money in your checking account. So it’s a good idea to pay attention to your balance and make sure you haven’t gone too far.
What is considered too much money in control?
Generally, it’s a good idea to keep enough money in a checking account to cover a few months of bills. But if you keep more than that in a checking account, you risk losing the opportunity to earn interest (or a return) on your money.
Many checking accounts do not earn interest. Some pay interest, but only a minimal amount. You will frequently earn a higher interest rate on your money by keeping it in a savings account or CD. And you could get a much higher return on your money by investing it, whether in an IRA or a regular brokerage account.
This is why you don’t want to go overboard on the checking account front. You won’t get much, or anything, back on that money, so there’s no sense in topping it up.
If you have a checking account and a savings account at the same bank, you can usually transfer money between them fairly quickly and seamlessly. In many cases, these transfers will be instantaneous. And you can do it from your bank’s mobile app or website.
So, let’s say you keep $2,000 in your checking account for bill-paying purposes, but you run into a home repair that requires you to write a check for $5,000. If you have $15,000 in your savings account, you may be able to transfer funds on the spot so that your checking account has enough cash to cover that bill.
Don’t short-circuit your checking account either.
While you don’t want to keep too much cash in your checking account, you don’t want to keep too little either. If you go this route, you could find yourself in a situation where you don’t have a large enough balance to cover the checks you write or to pay your bills.
If you typically spend $2,000 a month on living expenses, for example, it’s not a bad idea to keep $4,000 in your checking account so you have a good cushion. But keeping $10,000 in that account is another story, which could hurt you financially.
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