A checking account isn’t always the ideal place for your funds.
- I have a checking account where my paychecks are deposited.
- I do not keep much money in my checking account.
- There are three big reasons I prefer to do other things with my funds.
Like most people, I have a checking account that I get my paychecks deposited into as I earn money. But my checking account doesn’t have a lot of cash in it — just a small sum necessary to avoid the risk of overdrafting and to make sure my bills are paid.
My checking account balance isn’t small because I’m broke. Instead, there are three other key reasons why I’ve opted not to keep a lot of cash in this account.
1. I prefer high-yield savings that provide better returns
My checking account does not pay me any interest because it was not designed to be an investment that produces a return. Instead, it is a repository for my money that I use to pay bills.
Since I’m not earning anything on cash I keep in my checking account, it doesn’t make sense to keep a lot of money in there. I can move some of my cash over into a high-yield savings account where there is no risk of loss and which is FDIC insured (like my checking account) but produces a better return on investment.
2. I want dedicated accounts for each financial goal
Since my checking account is the place where I keep money to pay the bills, I don’t want to keep my savings there. It would be too hard to figure out what money is allocated to covering routine living costs and what is being saved for bigger purchases or important financial objectives.
To make sure I am on track for my goals, and to help me stay motivated, I have opened up dedicated savings accounts for different things I’m working toward. I have a retirement account, for example, and it provides tax breaks for investing. I also have separate savings accounts for a vacation fund; to cover college for my kids; to pay for home repairs; to prepare for emergencies; and to pay for big purchases.
With these separate accounts, I can keep tabs on exactly where my money is, how much I have saved and invested, and whether I …….