Too much unused money in your checking account could mean you’re missing an opportunity to earn interest and grow your money.
According to a financial planner, the amount in your checking account should not exceed two months of expenses.
If you have too much money in your checking account, it’s better to put it in an emergency account with a high return, a savings bond, or in a securities account.
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Everyone loves having lots of "visible" money in their account – but when is it too much? This is a question you may want to ask yourself, because having too much money in your checking account is not ideal, and for two main reasons:
1. More "visible" money might tempt you to spend more, too.
2. Checking accounts pay little to no interest, so your assets there won’t grow.
So too much money on the current account means that you leave additional money – even if it is only a little. Marci Bair, a financial planner at Bair Financial Planning in San Diego, advises people with a regular income that the amount in your checking account should include no more than two months’ worth of expenses. Do you feel or are you not sure yet? Bair tells you five signs that you have too much money sitting unused in your checking account.
1. You do not have a financial plan
If you don’t have a financial plan, there is a higher chance that money is sitting unused in your checking account. However, this is not an efficient way for your assets to grow.
Instead, decide how much money you want to save for specific goals and set up automatic transfers. This way, the money is transferred monthly to a savings or investment account and you can save money in a more targeted manner. A financial plan can help you save money that you need right away. At the same time, such a plan will help you achieve your goals and opportunities.
2. Your emergency fund is already full
A good sign that you have a lot of money: You already have a full emergency fund and still have money left over. Emergency funds generally include an amount for six months of expenses. Safely invested, but always accessible. However, enough money in your emergency fund may tempt you to just leave the rest of the money in your checking account. Bair makes it clear that there are much better ways: "Invest the money, for example, in a savings bond or in stocks and bonds."
3. You are neglecting important financial goals
It is one thing to neglect financial goals simply because you don’t have the money. But another to neglect such goals, although there is enough money. If your savings and retirement accounts are not growing, but the amount in your checking account is, you could be doing something wrong.
You should thank the principle of compound interest. Because time is of the essence when it comes to saving (for retirement). If you have money to save, you should invest it so that you can benefit from it as soon as possible. Consider automatic transfers, which transfer money from your current account directly to your financial goals.
4. You miss valuable opportunities
If you have a significant amount of money in your checking account, but it doesn’t give you an advantage, you could have too much cash and not be taking advantage of valuable opportunities.
There is a lump-sum savings allowance, which is an income tax allowance. For single people, up to 801 euros are tax-free. For married couples, the amount doubles to 1.602 Euros. This savings lump sum applies to interest and dividends, but also to profits from the sale of investments. In addition, there is the so-called employee savings allowance. If your employer pays you capital-forming benefits, you can also receive additional money from the state. This will then support you in building up assets precisely through this employee savings allowance.
There are many other ways to invest leftover money. Many German banks offer advice on everything from classic savings investments, where you play it safe, to high-opportunity investments, which can also involve risks. In Germany, some of the options include the following:
Savings bond: The savings bond offers a good interest rate with a high level of security for a medium- and long-term investment period.
Incremental savings: A safe investment with an interest rate that increases annually.
Premium savings: The longer you save your money regularly, the higher the bonuses you will receive in addition to the interest.
Fixed income securities: A safe investment with a fixed term and regular interest rates.
securities account: You need a securities account to invest your money in stocks, bonds or funds. It serves the purchase, sale and the safe custody of the securities.
5. You receive little to no interest on your checking account balance
While overdraft and overdraft are subject to high debit interest rates, you usually don’t get any interest for balances on your checking account. The reason is the continuing zero interest rate policy of the European Central Bank.
One alternative: call money accounts. Because instead of paying interest on balances in checking accounts, more and more banks are offering higher-interest overnight deposit accounts. Via online banking or standing order you can easily transfer surplus funds from your current account to your overnight deposit account and back. Here’s how to grow your money with the help of interest without much effort.
This article appeared on Business Insider back in November 2020. It was checked now again and updated.