Locate a Competent Financial Adviser
Finding a financial advisor
It doesn’t have to be complicated. With SmartAsset’s free tool, you can quickly match with up to three fiduciary financial advisors who serve your region. All of these advisors undergo careful evaluation.
SmartAsset
and must adhere to a fiduciary duty to prioritize your best interests.
Start your search now.
The information and specifics on this page might have been modified or altered after the initial publishing date. Please check out our article for updates.
Business Insider
for current information.
Affiliate links for the items featured on this page come from partnering companies that provide compensation to us, and certain conditions apply to the offers mentioned (refer to our)
advertiser disclosure with our partner listing
For additional information, please refer to this link. Nonetheless, our viewpoints are independent. See
How do we evaluate banking products?
to create impartial product reviews.
- Holding excessive funds in your checking account might result in losing potential interest and growth opportunities.
- Around two months’ worth of living costs is the maximum amount to hold in a checking account.
- High-yield savings accounts, certificates of deposit (CDs), and investment accounts are more advantageous for your money over the long term.
Everybody enjoys spotting a substantial amount in their checking account — yet at what point does it become excessively large?
Holding onto too much in your
checking account
It isn’t ideal due to two factors. Firstly, readily accessible funds may lead you to be enticed into spending them. Secondly, since checking accounts typically do not yield significant interest—or any at all—your cash won’t increase over time. Maintaining excessive balances in your checking account could result in missing out on potential earnings, regardless of how small they might be.
Financial advisor Marci Bair from
Bair Financial Planning
In San Diego suggests that for individuals with a consistent salary, she advises maintaining “roughly two months’ worth of living costs” in their checking account at all times.
If you’ve got one or two months’ worth of expenses stashed in your checking account and think you might be overfunded, consider these indicators. If they resonate with your situation, it may be wise to begin transferring some funds elsewhere.
Enjoy Special Discounts with Raisin
: Open a no-fee
Raisin
set up an account within minutes and distribute your savings among a select group of more than 30 banks insured by the FDIC and credit unions backed by NCUA. Achieve high savings rates and handle everything using one safe sign-in.
Explore deals and begin saving now »
1. There isn’t a strategy set for your savings.
If you lack a financial strategy, you might end up leaving your funds idle in your checking account, just awaiting unforeseen expenses. Such an approach doesn’t effectively foster wealth accumulation.
Rather than doing it manually, choose the amounts you want to allocate towards each of your financial objectives, then arrange for automated transfers from your checking account to your savings, retirement, and investment accounts every month.
A strategy can assist in turning your aspirations into tangible achievements, enabling you to set aside necessary funds while allocating the remainder towards various objectives and substantial expansion possibilities.
2. You have enough money set aside in your emergency fund.
A clear indication that you have more than enough funds begins with something positive: You’ve successfully assembled a complete portfolio.
emergency fund
, and you still have some funds remaining. An emergency reserve should consist of roughly six months’ worth of living costs kept in a secure yet accessible place, such as a
high-yield savings account
.
Once this account is established, it might be enticing to keep any extra funds in your checking account. However, Bair suggests alternative approaches for utilizing the money. She recommends redirecting the remaining amount into
CDs
“And then to a well-balanced investment portfolio,” she remarks.
3. You have been overlooking other monetary objectives, such as planning for your retirement.
It’s one matter to overlook financial objectives when funds are scarce. However, it becomes quite different when you disregard these goals even though you possess the means to work towards them. If your savings and
retirement accounts
If they aren’t increasing, yet your checking account balance is going up, you might be facing an issue.
If your checking account balance is increasing 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 crucial when it comes to saving for retirement (and, indeed, any type of savings). If you possess funds available for saving, you should place them in an account where they can start benefiting you at the earliest opportunity.
Think about arranging for automated transfers from your checking account or getting money taken out of your salary directly to work towards your financial objectives.
4. You’re letting chances slip away.
If you possess a substantial amount in your checking account yet aren’t capitalizing on benefits such as your company’s 401(k) matching contribution, you may be keeping too much liquidity. An employer match, which involves your boss contributing an equivalent sum into your 401(k) up until a specific threshold, essentially amounts to free funds. That additional balance sitting idly in your checking account could yield greater long-term returns if redirected towards your retirement fund instead.
Perhaps you haven’t looked into another type of savings or investment account such as a Health Savings Account (HSA). This is a tax-advantaged account meant specifically for approved medical costs; funds in this account can be carried forward annually and later used to bolster your retirement savings. If you have a high-deductible health insurance plan, you qualify for an HSA. Having additional funds in an HSA could contribute more effectively towards accumulating wealth compared to keeping them in your regular checking account.
5. You’re concerned about losing potential earnings.
According to the FDIC, the typical checking account boasts an interest rate of 0.07%. This figure is significantly below what you’d usually find with a high-yield savings account.
Moreover, this seems modest when compared to the typical 10% yearly gain from the stock market. This suggests that funds held in a retirement account or similar long-term investments might expand significantly further. Keeping your money in a checking account means potentially foregoing greater returns. Should this make you uneasy, then consider relocating those funds elsewhere.
Bair mentions, “I have customers who believe their balance in their checking account isn’t excessive,” but after showing them the minimal interest rates they’re earning compared to what’s available, they often decide to shift part of it to a higher-interest option.
The article was initially released in March 2020.
Business Insider
If you liked this tale, make sure to follow
Business Insider
on Microsoft Start.
