3 Signs You're Keeping Too Much Money in Your Checking Account

It's a good problem to have, right? Think again.

"Oh no, I have too much money in my checking account! What am I going to do?" Sounds like your most annoying "friend" complaining about their supposedly perfect life, doesn't it? Of all the money problems you could have, accidentally keeping too much of the green stuff in your checking sounds like a good thing.

But the Federal Reserve is continuing to march forward with interest rate hikes in an attempt to slow down spiraling inflation. So if you're keeping too much of your money in a place where it won't grow with interest (such as under your mattress, buried in your backyard, or in a checking account), you're missing out. Read on to learn how to tell if you might be keeping too much in your checking (and what to do about it).

1. Your finances have changed

This one hits close to home. I made some pretty substantial changes to my finances in 2022. So right now I am trying to get my feet under me as far as what my cash inflow and outflow situation will look like going forward. In addition to paying my bills (which are now much reduced thanks to getting out of debt), I'm also socking away money for freelance taxes and to contribute to my big goal of buying a house.

If you've also recently tightened up your finances or increased your income, you might be in the habit of leaving most of your money right where you can see it -- I sympathize with this impulse. But thanks to the rise of mobile banking technology, it's now easier than ever to check up on your money anytime you want. Both of the banks I have accounts with have robust mobile apps and excellent digital money management tools. If your bank doesn't afford you these privileges, it might be time to do some research and consider choosing a new bank.

2. You don't have a big expense coming up

Maybe you've gotten in the habit of keeping extra money in your checking to cover planned bills. If you know you're going to be buying, say, new tires for your car next month, it might be easier to just leave that money in place until you need it. But have a look at your finances and see if you do in fact have just such a bill or expense to pay soon. If you don't, and you've got an excess of cash in your checking, it's a good idea to move some of it over to your high-yield savings account.

Another dangerous thing about keeping too much money in your checking, where it's easier to spend, is that you might accidentally spend more money than you intend to. This is especially true if your income has increased and you haven't given your extra money a "job" yet.

3. You have more than one or two months' worth of expenses there

How much money should you actually keep in your checking? This is a question whose answer is different for everybody. Many experts recommend enough money to cover a month or two worth of expenses, as well as maybe a little buffer, just in case. Your mileage may vary, however. Consider a few things when deciding how to manage your checking account:

• How often do you get paid? If you only get paid biweekly or even less frequently, you may want to keep an amount of money in the range mentioned above. But if you have money coming in every week, you may not have to plan too far ahead when it comes to paying your bills out of your checking.
• What are your real monthly expenses? A budget can help you see, in real numbers, how much of your income is going to bills and how much of it you can save or invest via a brokerage or retirement account.

So what should you do?

If you're fortunate enough to have some extra money kicking around, don't just let it sit in your checking account. Have a look at your finances, considering what we discussed above. Think about automating your savings; if you set up automatic transfers from your checking to your savings when you get paid, you won't even miss that money, and you'll know it's going to earn interest for you.

You may also consider opening a certificate of deposit (CD) account, a money market account, or even an investment account, if you're ready to take bigger risks in exchange for bigger rewards. Just be sure to keep your longer-term money goals in mind when managing your checking account. Checking is the bank account of now; interest-earning accounts are for your financial future.