If you have a large balance in your checking account, congratulations!
But did you know that you could be losing money every month because of how much you have in there? Even worse, your funds might be at risk.
Here are eight reasons why you should avoid keeping a large balance in your checking account.
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Checking accounts are low interest
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While it can feel good to see a lot of money in your checking account, if you keep too much in there, you're actually missing out on free money.
If your bank offers a high-yield savings account (HYSA), you can earn more money just by moving some of it over there.
HYSAs offer high interest on your savings, with some paying over 3% APY. Compare that with the 0.05% that most checking accounts pay.
The trick is to keep just enough in your checking account to cover your monthly spending (plus a small buffer) and put the rest in a savings account to earn interest.
If you're worried about not having access to your money, many HYSAs offer ATM access if needed. But ideally, you'll leave the money alone to earn some passive income.
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You'll be tempted to spend more
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Let's be real. If you keep a high balance in your checking account, it's much easier to overspend, because it barely makes a dent in your overall balance.
And when the spending temptations come (and oh, they will!), you'll have no buffer between you and your stack of cash.
If you move most of your savings out of your checking account, you'll have to take at least one more step to access those funds. That might be an online transfer or finding a no-fee ATM.
Adding a small amount of friction to the spending process gives you time to slow down, think about your purchase, and avoid buying something you don't need.
If you only have enough in your checking account to cover your monthly expenditures, you'll think twice about making any last-minute purchases.
You're missing out on tax benefits
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Did you know you might be paying more in taxes by keeping a large balance in your checking account?
If you have a pile of savings sitting in the bank, you may not be taking advantage of the tax benefits of investing in retirement accounts.
An individual retirement account (IRA) is a tax-advantaged account that allows you to invest money and save on taxes at the same time. Traditional IRA accounts help you save on taxes this year, while Roth IRA accounts help you save on taxes later.
If you're not investing in an IRA — or haven't maxed them out for the year — and you have an oversized checking account, consider moving some of those funds into an IRA.
Not only will you get tax benefits, but you'll also start taking advantage of compounding interest and grow your investments over time.
Credit card debt is suffocating. It constantly weighs on your mind and controls every choice you make. You can end up emotionally and even physically drained from it. And even though you make regular payments, it feels like you can never make any progress because of the interest. National Debt Relief could help you resolve your credit card debt with an affordable plan that works for you. Just tell them your situation, then find out your debt relief options.1 <p>Clients who are able to stay with the program and get all their debt settled realize approximate savings of 46% before fees, or 25% including our fees, over 12 to 48 months. All claims are based on enrolled debts. Not all debts are eligible for enrollment. Not all clients complete our program for various reasons, including their ability to save sufficient funds. Estimates based on prior results, which will vary based on specific circumstances. We do not guarantee that your debts will be lowered by a specific amount or percentage or that you will be debt-free within a specific period of time. We do not assume consumer debt, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. Not available in all states. Please contact a tax professional to discuss tax consequences of settlement. Please consult with a bankruptcy attorney for more information on bankruptcy. Depending on your state, we may be available to recommend a local tax professional and/or bankruptcy attorney. Read and understand all program materials prior to enrollment, including potential adverse impact on credit rating.</p> How to get National Debt Relief to help you resolve your debt: Sign up for a free debt assessment here. (Do not skip this step!) By signing up for a free assessment, National Debt Relief can assist you in settling your debt, but only if you schedule the assessment.Resolve $10,000 or more of your debt
Your money is at risk
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Did you know that some of your money may not be insured?
If you have a sizable balance in your checking account, some of it may not be covered by FDIC insurance. This insurance helps protect consumer funds if a bank goes out of business.
But FDIC insurance only covers up to $250K of your balance (per individual, per account). Any additional funds over $250K are at risk.
You may want to spread those funds between multiple FDIC accounts to ensure that your money is fully protected in case of a bank meltdown.
You're at risk of fraud
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While keeping enough money in your checking account can help you from racking up debt, it can also make you a target for fraud.
There are many ways criminals can gain access to your cash, including ATM skimming (copying card numbers), peer-to-peer payment fraud (such as PayPal or Cash App), phishing, or even fake checks.
While fraud is possible with any financial account, if you lose money in your checking account, it's much harder to get it back than if your credit card number is stolen.
And if you have bills or payments due (such as your mortgage), you may be in a world of trouble if your checking account balance gets drained by a thief.
Instead, keep a minimum amount of money in your checking account, put a majority in a savings account, and pay for daily expenditures with a credit card.
If someone steals your credit card, most companies will just reverse the charges and send you a new card without issue.
But if someone happens to steal your debit card or access your checking account, they'll be disappointed at the dismal amount of funds available.
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Checking accounts are for spending
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Checking accounts are called that because they were designed for spending, not saving. If you try to use your checking account as a savings account, you're defeating its purpose.
Instead, consider your checking account a temporary storage place for your money while it travels elsewhere.
Since your checking account is your spending account, all of the money in it should be earmarked for certain purposes in your budget.
Any extra funds should be used to boost your savings accounts or toward your investing goals instead of sitting there waiting to get spent.
You can lose money through billing errors
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If you keep a large balance in your checking account, smaller expenses may seem inconsequential. But over time, those small expenses can add up to hundreds (or even thousands) of dollars.
For example, if your auto insurance company renews your policy and increases the rate, you may not notice the difference if it's auto-deducted from your checking account.
Because the expenses are so small compared to your balance, the smaller expenses may slip through the cracks. Over time, the $80 per month difference on your auto insurance could cost you $960 per year!
Avoiding a high balance in your account will make you much more aware of these sudden billing changes and help you stop overpaying your bills.
If you see it, you'll spend it
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One of the best ways to save more money is to avoid having access to the money in the first place. This is why 401(k) accounts are so effective since your funds are invested before you even have access to your paycheck.
The same principle goes for your checking account. If you have a large balance, you might feel like you can spend without watching your dollars because it's not a big deal.
But if you move your funds out, you'll be more diligent about sticking to your budget and not overspending.
Not having access to money means you'll spend less. It's really that simple.
Bottom line
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Keeping a large chunk of change in your checking account may feel good for a while, but it can actually cost you in the long run.
Finding a safe place to stash your savings can help you save (and earn) more and become more in tune with your spending habits.
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SoFi Checking and Savings Benefits
- Earn up to 3.80% APY2 <p>New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) <b>OR</b> $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. See full bonus and annual percentage yield (APY) terms at <a href="http://www.sofi.com/banking#1">sofi.com/banking#1</a>. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC.</p> <p>SoFi members who enroll in SoFi Plus with Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi Plus members are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of Jan. 24, 2025. There is no minimum balance requirement. Additional information can be found at <a href="http://www.sofi.com/legal/banking-rate-sheet">http://www.sofi.com/legal/banking-rate-sheet</a>. See the SoFi Plus Terms and Conditions at <a href="https://www.sofi.com/terms-of-use/#plus">https://www.sofi.com/terms-of-use/#plus</a>.</p> and collect up to a $300 cash bonus with direct deposit or $5,000 or more in qualifying deposits3 <p>SoFi members who enroll in SoFi Plus with Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi Plus members are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of Jan. 24, 2025. There is no minimum balance requirement. Additional information can be found at <a href="http://www.sofi.com/legal/banking-rate-sheet">http://www.sofi.com/legal/banking-rate-sheet</a>. See the SoFi Plus Terms and Conditions at <a href="https://www.sofi.com/terms-of-use/#plus">https://www.sofi.com/terms-of-use/#plus</a>.</p>
- No account, overdraft, or monthly fees4 <p>We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at <a href="http://sofi.com/legal/banking-fees/">sofi.com/legal/banking-fees/</a></p>
- Get your paycheck up to two days early5 <p>Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.</p>
- Access additional FDIC insurance up to $3 million6 <p><b style="font-family: Rubik, -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, "Helvetica Neue", Arial, sans-serif;">SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>.</b></p>
FinanceBuzz writers and editors score products and companies on a number of objective features as well as our expert editorial assessment. Our partners do not influence our ratings.
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