Why Your Checking Account Should Contain as Little Money as Possible

Right now I've got a little less than $4,000 in my checking account. And usually I try to keep the balance even lower than that. It's just enough to cover my bills until my next paycheck lands, and not a dollar more.

On paper, it might look like I'm living paycheck to paycheck. I'm not. I've got plenty of cash, it's just being held in other accounts where it can actually work for me.

Here's why checking accounts are the worst place for keeping idle cash, and where to stash your money instead.

Checking accounts earn almost nothing in interest

Most checking accounts pay little to no interest. I'm talking about 0.01% at most big banks -- which is basically pennies each year.

So every extra dollar you keep in a checking account isn't really working for you -- it just sits and slowly loses value to inflation.

I treat my checking account like a temporary pass-through, not a savings vault. Money comes in, bills go out, and the float balance never really gets higher than a single month's worth of expenses. Any dollar above that has a better place to be.

A high-yield savings account can pay up to 4.00% APY

For any cash savings you want to keep liquid and accessible, a high-yield savings account is the best spot.

These accounts pay way more than a standard checking account (or standard savings too), and your money is just as easy to reach.

Right now, top high-yield savings accounts are paying between 3.00% to 4.00% APY. That's 300 to 400 times as much as the 0.01% a typical big bank checking account offers. And that growth helps it keep up with inflation, or beat it ideally.

I keep around $20,000 in a high-yield account at a separate bank from my checking. It earns 4.00% APY, which brings in about $800 in interest a year. That's money I'd flat-out miss by leaving it in a checking account.