Checking accounts and savings accounts have a lot of similarities, but they are used for different purposes. And when it comes to your money, where you decide to deposit it for short- or long-term plansis important.
Checking accounts are meant to hold cash for your everyday purchases, allowing you to deposit and withdraw cash quickly. Meanwhile, savings accounts, especially ones that yield high interest, provide a place to store and grow your money for longer periods of time.
Banks typically offer both options, but it’s up to you to decide how you split your funds. From a financial planning perspective, you should have aboutthree to six months in accessible reserves, Shon Anderson, a certified financial planner at Anderson Financial Strategies, LLC, tells CNBC Select.
Since checking and savings accounts are two of the most accessible places to stash your cash, you can divide your cash between both based on when you're planning to spend it.
This is how Anderson recommends splitting it:
Checking account: 1 to 2 months of expenses
“Since your checking account is the ‘operating’ account that bills are paid out of, our recommendation is one to two months of expenses,” Anderson says.
Checking accounts offer quick and easy access to your money, and while you could incur common fees like monthly service charges, most fees are avoidable if you take action like setting up direct deposit or enrolling in paperless statements.
You can also consider a checking account without fees. CNBC Select ranked our top no-fee checking picks and below are our five favorites:
Savings account: 2 to 4 months of expenses
After allocating one to two months of your expenses into a checking account, Anderson says that the two to four months of additional reserves should be put into a savings account — specifically a high-yield savings account.
High-yield accounts can earn you over 16X more money than a traditional savings account, at no additional risk to you. And even when interest rates are low (as they currently hover around 1%), it’s still a smart move so you aren’t leaving money on the table.
“Typically the best ones are online,” Anderson says. “Connect your checking to it in order to move funds if needed. You can connect your accounts either directly if your bank allows or through a payment app like Venmo.”
Some high-yield savings accounts even offer their own checking account option.CNBC Select ranked our top high-yield savings picks and below are our five favorites:
Because they earn you a higher interest rate than normal savings account, many consumersuse these types of accounts to build an emergency fund or create a safety net of short-term savings.
Goldman Sachs Bank USA is a Member FDIC.
Information about the Synchrony Bank High Yield Savings Account and Ally Bank Spending Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication.
Ally Bank is a Member FDIC.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
FAQs
Aim for about one to two months' worth of living expenses in checking, plus a 30% buffer, and another three to six months' worth in savings.
How much cash should I keep in my checking account? ›
The general rule of thumb is to try to have one or two months' of living expenses in it at all times. Some experts recommend adding 30 percent to this number as an extra cushion.
How much cash should you keep in your savings account? ›
Generally, you'll want to aim to have at least two to four months' worth of expenses in your savings account. “Your emergency fund is where you should be keeping the bulk of your cash,” says Ginty.
How much cash can you keep at home legally in the US? ›
The government has no regulations on the amount of money you can legally keep in your house or even the amount of money you can legally own overall. Just, the problem with keeping so much money in one place (likely in the form of cash) — it's very vulnerable to being lost.
How much is too much to keep in a savings account? ›
FDIC and NCUA insurance limits
This insurance protects your money if the financial institution you bank with goes out of business or otherwise can't afford to let you withdraw your money. So, regardless of any other factors, you generally shouldn't keep more than $250,000 in any insured deposit account.
What is a good amount of money to keep in the bank? ›
Most financial experts suggest you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000. Personal finance guru Suze Orman advises an eight-month emergency fund because that's about how long it takes the average person to find a job.
Should I leave all my money in a checking account? ›
Not necessarily. Money in a checking account is easy to access, and keeping balances above the bare minimum can help you avoid monthly maintenance fees. But having a bloated checking account means you're missing out on higher returns in a savings or retirement account.
How much cash should I have on hand at home? ›
It's a good idea to keep enough cash at home to cover two months' worth of basic necessities, some experts recommend. A locked, waterproof and fireproof safe can help protect your cash and other valuables from fire, flood or theft.
How much cash should you put in the bank at a time? ›
Cash deposit limits can be different for each bank or financial institution, but banks must report any deposits over $10,000 to the IRS. So, while you may be able to deposit more than $10,000 into your bank account, know that the bank will investigate, track and report that payment as a result to ensure it's legal.
How much money should be left in a bank account? ›
Savings account: 2 to 4 months of expenses
After allocating one to two months of your expenses into a checking account, Anderson says that the two to four months of additional reserves should be put into a savings account — specifically a high-yield savings account.
Having large amounts of cash is not illegal, but it can easily lead to trouble. Law enforcement officers can seize the cash and try to keep it by filing a forfeiture action, claiming that the cash is proceeds of illegal activity. And criminal charges for the federal crime of “structuring” are becoming more common.
Where is the safest place to keep cash at home? ›
For security purposes, money should be kept in a bolted-down safe along with any other valuables in the home, Castle Rock Investment Company's McCarty said. “Make sure the safe is fire and waterproof to avoid any damage. Make sure you deposit and replace the money on occasion so that the bills don't get too old.”
Should I keep my money in the bank or at home? ›
Banks are a reliable place to keep your money protected from theft, loss and natural disasters. Cash is usually safer in a bank than it is outside of a bank. For instance, there's no guarantee that funds kept in your home are safe from burglars or fires.
How much money should you keep in a checking account? ›
A common rule of thumb for how much to keep in checking is one to two months' worth of expenses. If your monthly expenses are $4,000, for instance, you'd want to keep $8,000 in checking. Keeping one to two months' of expenses in checking can help you to stay ahead of monthly bills.
Is $10,000 too much to keep in a savings account? ›
The first thing you might wonder is whether it's even safe to keep that much cash in a savings account, and it definitely is. All reputable savings accounts carry up to $250,000 of Federal Deposit Insurance Corporation (FDIC) insurance per person, per bank, per ownership category.
Should you keep more money in checking or savings? ›
The best type of account is the one that fits your current financial goals and needs. Checking accounts can help you handle all of your daily spending and recurring bills, while savings accounts can help you build your savings, protect you from unexpected expenses and help meet your savings goals.
How much does the average person keep in their checking account? ›
Average household checking account balance by age
| Age range of reference person | Average checking account balance in 2022 | Median checking account balance in 2022 |
|---|
| Under 35 | $7,355.53 | $1,600.00 |
| 35 to 44 | $15,309.92 | $2,500.00 |
| 45 to 54 | $20,155.22 | $3,400.00 |
| 55 to 64 | $17,515.35 | $3,500.00 |
2 more rowsOct 18, 2023
At a bare minimum, there should be enough money kept in a checking account to meet any minimum requirements set by the bank, if applicable. Some checking accounts, especially those that pay interest or bonuses, require the customer to keep a minimum balance to avoid monthly fees.
What percentage should you keep in cash? ›
A general rule of thumb is that cash and cash equivalents should comprise between 2% and 10% of your portfolio.
