For many individuals, a checking account serves as the primary financial tool where paychecks are deposited, bills are paid, and daily expenditures occur. However, there is a possibility that individuals are holding excessive funds in these accounts.
Although having extra money in a checking account can feel secure, it often results in financial loss due to low interest rates. Instead, reallocating surplus funds into a high-yield savings account (HYSA) can foster financial growth.
Recommended Checking Account Balance
A prudent guideline suggests maintaining an amount equivalent to one to two months’ worth of essential expenses in a checking account. This includes costs such as:
- Rent or mortgage
- Utilities
- Insurance payments
- Groceries
- Entertainment
For example, if monthly essential expenses total $3,500, it would be advisable to keep between $3,500 and $7,000 in a checking account. This ensures adequate coverage for bills and daily costs without leaving extra money idle.
High-Yield Savings Account Options
Among the top high-yield savings options for 2025 are:
- American Express® High Yield Savings with a 3.70% Annual Percentage Yield (APY).
- CIT Platinum Savings, offering a 4.10% APY on balances exceeding $5,000.
- Capital One 360 Performance Savings, also offering a 3.70% APY.
Risks of Excessive Checking Account Balances
The Federal Deposit Insurance Corporation (FDIC) reports an average checking account interest rate of 0.07%. Therefore, a balance of $5,000 would earn a mere $3.50 annually. In contrast, an HYSA with a 4.50% APY would yield $225 annually for the same amount, without any extra effort.
Alternatives for Extra Funds
For individuals with additional funds in their checking accounts, alternatives include:
High-Yield Savings Accounts (HYSAs)
- Offer easy access to funds with significantly higher interest than a typical checking account.
- Ideal for emergency funds, vacation savings, and significant purchases.
Certificates of Deposit (CDs)
- Suitable for money that is not needed immediately. CDs offer similar rates to HYSAs but require funds to be locked for a predetermined period, securing the interest rate.
- Investment Accounts
- Includes options like brokerage accounts, Roth IRAs, or 401(k)s, which can potentially grow long-term wealth. Historically, the S&P 500 Index has provided an average annual return of about 10%.
Encouragement to Optimize Savings
For those who have accumulated excess cash in their checking accounts, now is an opportune moment to transfer those funds to more productive financial vehicles. By exploring available high-yield savings accounts, money can grow more rapidly while remaining secure and accessible when needed. This strategy prevents idle cash and enhances financial earnings through higher interest returns.
