5 Signs You're Keeping Too Much Money In Your Checking Account

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• Keeping too much in your checking account could mean missing out on valuable interest and growth.
• About two months' worth of expenses is the most to keep in a checking account.
• High-yield savings accounts, CDs, and investment accounts are better for money long-term.

Everyone loves seeing a big balance in their checking account — but how big is too big?

Keeping too much in your checking account isn't ideal for two reasons. First, such easy access means you might be tempted to spend it. Second, checking accounts don't earn much interest (if any), so your money won't grow there. Keeping too much in your checking account could mean that you're leaving money — even a little — on the table.

Financial planner Marci Bair of Bair Financial Planning in San Diego says for anyone with a steady income, she recommends keeping "no more than about two months of expenses" in checking at any given time. 

If you have a month or two of expenses in checking and suspect you might have too much, take a look at the following signs. If they sound familiar, it's probably time to start moving money somewhere else.

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1. You don't have a plan for your savings

If you don't have a plan for your money, you're more likely to leave it sitting in your checking account, waiting for whatever comes up. This isn't an efficient way to build wealth.

Instead, decide how much you'd like to see go toward each of your financial goals, and set up an automatic transfer from your checking account to your savings, retirement, and investment accounts each month. 

A plan can help make your dreams a reality, allowing you to save what you need while directing the rest toward other goals and bigger growth opportunities.

2. Your emergency fund is already full

One sign you have too much money starts with a good thing: You've already put together a full emergency fund, and you still have money left over. An emergency fund includes about six months' worth of expenses stored somewhere safe but liquid, like a high-yield savings account.

After this account is built, it can be tempting to leave any spare cash in your checking account. Bair says there are other ways to put the money to work. "Flow the rest over into CDs and then to a balanced investment portfolio," she says.

3. You've been neglecting other financial goals, like retirement

It's one thing to neglect financial goals when the money simply isn't there. It's another thing entirely to neglect your goals when you have the cash to make progress on them. If your savings and retirement accounts aren't growing, but your checking account is, you could have a problem. 

If your checking account is growing while your IRA, 401(k), or savings account remains stagnant, you're probably keeping too much money in checking. Thanks to compound interest, time is of the essence when it comes to retirement savings (and, really, savings of any kind). If you have the money to save, you'll want to put it in an account where you can benefit as soon as possible.

Consider setting up automatic transfers from your checking account or having funds deducted from your paycheck to go toward your financial goals. 

4. You're missing out on opportunities

If you have a sizable checking account but aren't taking advantage of opportunities like your employer's 401(k) match, you might be holding on to too much cash. A match, where your employer matches your 401(k) contributions up to a certain percentage, is like free money, and that extra money from your checking account would better serve you in your retirement account.

Or, maybe you haven't considered another saving or investment account like a health savings account, which is a tax-advantaged account for qualified health expenses that you can roll over year to year and use for supplemental retirement savings in the future. Anyone with a high-deductible healthcare plan is eligible, and some extra money in an HSA would make more progress toward building wealth than in your checking account.

5. You're worried you're missing out on money

The average checking account has an interest rate of 0.07%, according to the FDIC. That's much lower than the typical interest rate on a high-yield savings account.

And that pales in comparison to the 10% average annual return in the stock market, meaning a retirement account or other long-term investment account could grow even more. By leaving money in a checking account, you could be missing out on more growth. If that's not something you're comfortable with, it's time to move it. 

"I've got clients who don't think they have too much in their checking account," Bair says, "but once they see the low interest rate that they're getting and what they could get in interest, we'll usually move some over into that next level."

This article was originally published in March 2020.