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
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.
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? ›
For savings, aim to keep three to six months' worth of expenses in a high-yield savings account, but note that any amount can be beneficial in a financial emergency. For checking, an ideal amount is generally one to two months' worth of living expenses plus a 30% buffer.
How much money should you keep in a regular 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.
What is a good amount to have in cash savings? ›
A rule of thumb is to set aside 50% of your income for necessities, 30% for discretionary expenses and 20% for savings. Use this free savings calculator to project how your money can grow over time.
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.
How much cash should I have on hand at home? ›
While you're working, we recommend you set aside at least $1,000 for emergencies to start and then build up to an amount that can cover three to six months of expenses. When you've retired, consider a cash reserve that might help cover one to two years of spending needs.
How much cash should I leave 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.
Is 20k in savings good? ›
The recommended amount to save varies from person to person, as everyone's financial situation differs. But for many people, $20,000 is a sizable emergency fund goal that will go far. If you have a large chunk of savings set aside, make sure you keep it in a bank account that earns interest.
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.
Is $50,000 in savings good? ›
If you're nearing retirement with just $50,000 in savings, the reality is that you're frankly not in the best shape. The average 60-something has a retirement savings balance of $112,500, according to Northwestern Mutual. Even that, frankly, isn't a ton of money.
What is the ideal amount in a savings account? ›
Rule of thumb? Aim to have three to six months' worth of expenses set aside. To figure out how much you should have saved for emergencies, simply multiply the amount of money you spend each month on expenses by either three or six months to get your target goal amount.
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 it better to keep money in cash or bank? ›
It's a good idea to keep a small sum of cash at home in case of an emergency. However, the bulk of your savings is better off in a savings account because of the deposit protections and interest-earning opportunities that financial institutions offer.
Is it smart to keep savings in cash? ›
Having the right amount of cash on hand can also work wonders for easing your overall sense of financial stress, even (and especially) during the height of a crisis. Nothing beats a sense of financial security.
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
Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you'll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.
Is it bad to leave a lot of money in checking account? ›
The national average for interest-bearing checking accounts is 0.07% APY. Compare that to a high-yield savings account that can earn as high as 5.00% APY or more. If you keep too much money in your checking account, you'll forfeit the opportunity to earn a higher yield on your cash.
How much cash should I keep in my current account? ›
How much cash to hold when you're working. Anyone working should have a minimum of three to six months' worth of essential expenses in emergency savings. If you lose your job, it can take time to start earning an income again.
