What to Do When You Have Extra Cash in Your Checking Account

As tight as people’s budgets can be these days, everyone looks forward to (and hopes for) a little extra in their checking account at the end of the month. Whether this happens to you regularly or once in a while, the question then becomes what to do with extra money and comparing your options between a checking vs savings account. As bankers, we encourage people to save as much as possible, and we’d like to help you to make the most of what you have. While you need to keep enough in your checking account to meet your everyday expenses, any excess cash could be put to use in ways that help you stretch every dollar as far as possible.

How Much Money Should Stay in Your Checking Account?

As a general rule of thumb, financial advisors recommend you keep enough money in your checking account to cover a month or two of your regular household living expenses, with a bit of a financial cushion. Of course you’ll want to make sure that you have enough in that account to cover any minimum balance requirements, even after you’ve paid your bills. If your income fluctuates from month to month, you may need to keep a little bit more in your account than someone with a steady income.

Build or Strengthen Your Emergency Fund

It’s recommended that each household have at least two to three months’ worth of living expenses as an emergency savings fund. Your emergency savings funds should be kept in a place that’s safe and lets you could access them at any time. It’s even better if you can earn interest on your emergency funds by keeping them in a savings account or money market account.

Pay Down High-Interest Debt

In May, the average interest rate for American credit cardholders that carry a balance from month to month was 22.15%, according to the Federal Reserve, which is close to record highs. The rate for 24-month personal loans was 11.86%.

The amount of total credit card debt held by American consumers is nearly $1.25 trillion, according to Experian, a 5.4% increase from last year. Experian notes that this increase is higher than the recent rate of inflation, which means some consumers are increasing their debt loads at a rate that’s beyond any adjustments for the cost of living.

“Average consumer credit card balances barely increased, rising just 0.6% to $6,659, suggesting many consumers may be hitting a limit on how much additional card debt they can carry,” Experian reported.

If someone had a $6,659 credit card balance, an interest rate of 22.15%, and they paid $125 per month, with no additional purchases added to the card, it would take them more than 18 years to pay off their balance and cost more than $21,000 in interest charges. If they paid $150 each month, it would take them more than seven years to pay off the balance and cost more than $7,000 in interest charges.

This is why using any extra cash you may have to pay off a high-interest loan makes sense, and paying just a little bit more each month on an outstanding loan can really improve your financial security and reduce your borrowing costs.

Move Extra Cash Into an Interest-Earning Account

If you don’t have any high-interest loans to pay off, keeping some of your funds in an interest-bearing savings account can help your money go farther by earning on what you save while also giving you the flexibility to draw on these funds, if needed.

When a Personal Savings Account Makes Sense

If you find the balance in your checking account growing a little bit more each month, it would make sense to transfer some of these funds to a savings account where you can earn interest. This is why so many financial advisors would tell you to keep your emergency funds in a savings account. Many people use the funds in their checking account for their everyday spending and to pay their bills, and their savings account is where they put any extra funds they might have at the end of the month.

When to Consider a Money Market Account

Regular savings accounts have low minimum deposit and monthly balance requirements, so they’re great for people who just want a place to put their money and earn interest. Money market accounts have higher opening deposit and minimum monthly balance requirements, while also offering a higher interest rate compared to regular savings accounts. A money market account may also offer a tiered interest rate so the higher your balance is, the more interest you could earn.

For example, our Kasasa Saver and Personal Savings accounts each require just a $50 minimum deposit to open an account. Our Money Market Investment Account requires a $2,500 minimum opening deposit. You could not only earn a higher interest rate with our Money Market Investment Account, it also offers a tiered rate level so those with a $10,000 balance or more earn a higher interest rate than those with balances less than that. Additional tiers earn a higher interest rate for balances of $25,000 and $50,000 or more.

Another key difference between our regular savings accounts and our money market account is that our money market account also has a checkbook feature so you can write checks directly from your money market account, although you are limited to a maximum of six transactions per month. Our other savings accounts don’t have the ability to write checks from these accounts, but they also don’t have monthly transaction limits.

When to Choose a Certificate of Deposit (CD)

A certificate of deposit (CD) is typically used by those who want to earn a higher interest rate than they could with a money market or savings account and they won’t need their funds for a while. In some cases they’re saving up with a particular target date in mind, such as the down payment on a home or a major expense such as a wedding. For example, if you were saving up for something a year from now, you could put some of your funds into a 12-month CD. A few months later, when you have more money to invest, you could put those funds into a nine-month CD. The closer you are to your target date, the shorter the CD term you would choose.

We offer CDs with term lengths ranging from one month to 60 months (five years), and the longer the term you choose, the higher the interest rate you’ll receive. We also offer a large deposit or special deal on CDs where you can receive a higher interest rate based on the amount of your deposit. Our minimum deposits for a CD start at $500, and there’s a 10-day grace period when a CD comes to term, so you could choose to withdraw your funds or e-enroll them into another CD during that time.

Save for Upcoming Financial Goals

Many of our customers have a checking account, a money market or savings account, and they invest in CDs. They use their checking account for everyday spending, their savings account to hold some of their emergency funds, and CDs of different term lengths in what’s known as a “CD ladder.” This way, if they have a financial emergency or an unexpected expense, they can tap into their money market or savings account until one of their CDs comes to term and they can access those funds.

Automate Your Savings Strategy

One of the benefits of having a checking account and one or more savings accounts is that, for many people, once they transfer funds from a checking to a savings account, they no longer consider that money to be part of their regular spending budget. Having money in a checking account is a bit like having money in your pocket, and it can be really tempting to spend it. Having money in a savings account is like leaving some of your funds at home when you leave the house, which keeps you from spending them.

Many of our customers find that it’s much easier to meet their savings goals if they automate their savings. Instead of waiting until the end of the month and transferring any excess funds from their checking to their savings account, they set up regular transfers from their checking to a savings account that happen with every paycheck or once per month, which reduces the temptation to spend this money and helps them meet their financial goals.

Make Your Money Work Harder with Flanagan State Bank

To discover how you can get your money to work for you, check out Flanagan State Bank’s savings account options online and contact us or stop by one of our convenient branch locations to learn more and open an account.

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