Sarah Travers
In today’s fast-paced world, a checking account plays a crucial role as a secure repository for our hard-earned money, ready to cover daily expenses and bills.
However, recent financial advice suggests that maintaining an excessive balance in your checking account may not be the most financially savvy strategy. Here’s why, and where you should consider allocating your surplus funds for optimal financial growth.
Avoiding the Checking Account Pitfall
It’s widely known that the average checking account doesn’t yield any interest on your deposits. This means that your money essentially sits idle, missing out on any opportunity for growth. Financial experts advise keeping just enough in your checking account to cover your monthly expenses, along with a buffer for unexpected charges. The exact amount may vary from person to person, but generally speaking, a few hundred dollars or up to an extra $1,000 should suffice.
The key takeaway here is to resist the temptation to leave every last dollar in your checking account. By doing so, you’re essentially forgoing potential earnings through interest.
Growing Your Savings: The Power of a Savings Account
To make your money work for you, consider transferring your surplus savings to a bank account that accumulates interest. Savings accounts provide a way to earn money while your cash remains safely deposited. The crucial factor to consider is the Annual Percentage Yield (APY), which represents the interest you can earn over a year. The higher the APY, the more your money has the potential to grow.
For those seeking to maximize their earnings, high-yield savings accounts stand out as an attractive option. According to the latest data available, these accounts offer APYs ranging from 4.30% to 5.26%, providing a lucrative opportunity for your extra funds to flourish.
Calculating Your Potential Gains
Determining the potential interest you can earn is straightforward. Simply multiply your initial deposit by the APY offered by your chosen savings account, and you’ll have a clear estimate of your potential earnings over a year. For example, if you have $5,000 to spare and transfer it to a high-yield savings account with a 5% APY, your annual earnings could reach $250.
This is a significant contrast to leaving your money parked in a checking account that offers no interest, which would leave you with zero additional earnings.
Lean Checking, Prosperous Savings
Financial experts advise against keeping all your cash in a checking account. By carefully managing your finances, you can earn extra money through interest by placing your surplus cash in a savings account.
With high-yield savings accounts offering opportunities for substantial gains, it’s a wise move to make your money work for you. To discover more tips and insights on personal finance, don’t forget to explore our free resources dedicated to helping you achieve financial success.
