In today’s fast-paced world, a checking account has become a financial lifeline, a secure repository for our hard-earned cash, ready to cover everyday expenses and bills.
However, a recent financial advisory suggests that keeping excessive funds in your checking account might not be the best financial strategy. Here’s why and where you should stash your extra savings for optimal growth.
Interest Evasion: The Checking Account Pitfall
It’s no secret that the average checking account doesn’t offer interest on your deposits. This means that your money merely sits there, with no opportunity to grow. Financial advisors recommend keeping just enough in your checking account to cover your monthly expenses, including a buffer for unforeseen charges. The exact amount may vary from person to person, but generally, a few hundred dollars or up to an extra $1,000 should suffice.
However, a key takeaway here is to avoid leaving every last dollar in your checking account. By doing so, you’re essentially missing out on potential earnings through interest.
Earning While You Save: The Power of a Savings Account
To put your money to work, consider transferring your surplus savings to a bank account that accrues interest. Savings accounts offer a means to earn money while your cash sits safely in the bank. The crucial factor to look for is the Annual Percentage Yield (APY), which represents the interest you’ll earn over a year. The higher the APY, the more your money can grow.
For those looking to maximize their earnings, high-yield savings accounts are a noteworthy option. As of the latest data available, these accounts boast APYs ranging from 4.30% to 5.26%, presenting a lucrative opportunity for your extra funds to flourish.
Calculating the Gains: How Much Can You Earn?
Determining the potential interest you can earn is straightforward. Multiply your initial deposit by the APY your chosen savings account offers, and you’ll get a clear picture of your potential earnings over a year. For instance, if you have $5,000 to spare and transfer it to a high-yield savings account with a 5% APY, your annual earnings could amount to $250.
This starkly contrasts with the situation where your money remains parked in a checking account that offers no interest, leaving you with zero additional earnings.
The Bottom Line: Lean Checking, Prosperous Savings
Financial experts advise against parking all your cash in a checking account. By judiciously managing your finances, you can earn extra money through interest by placing your surplus cash in a savings account.
With high-yield savings accounts providing opportunities for significant gains, it’s a smart move to make your money work for you. To explore more tips and insights on personal finance, be sure to check out our free resources dedicated to helping you achieve financial success.
