CDs, Savings and Checking Accounts, Savings Bonds: Here's Where I Put My Own Cash

As both a financial writer and a Certified Financial Planner™, I'm very familiar with all of the various types of bank accounts and other interest-bearing instruments Americans can use to store their cash. However, one of the most common questions I'm asked is what I do with my own money.

Well, without getting into the dollar amounts I keep in various accounts, here's a rundown of the different types of cash accounts I use and some things to keep in mind when you're deciding how to allocate your money.

How much do I keep in my checking account?

According to the Federal Reserve Board Survey of Consumer Finances, the average U.S. household has $10,618 in their checking account. However, the median is about $2,000, which means that half have less and half have more.

Without getting into the actual dollar amounts I keep in my bank accounts, I'll say that I keep about one month's worth of expenses in my checking account at any given time.

It's a good idea to keep enough money in a checking account so you don't have to worry if there's enough to cover your bills at any time, but not so much that you have lots of excess cash sitting there at 0% interest, or close to it.

Savings accounts are my primary cash account type

I prioritize investing when I have extra money, and while that's a different topic for a different article, it's worth pointing out that the bulk of my money is in brokerage accounts and retirement accounts, invested in stocks, mutual funds, ETFs, and other instruments.

With that in mind, when it comes to my cash, the majority is in high-yield savings accounts. We're in a relatively high interest rate environment right now, so for me, my high-yield savings account gives me an excellent return while also maintaining flexibility. This might change a bit when it looks like rates are about to decline, as I'll discuss in the next section, but I prioritize flexibility over maximum yield for cash. Of course, that's just my preference and it isn't a one-size-fits-all approach.

Bonds and CDs

As mentioned, the bulk of my cash that hasn't been put in investment accounts is in high-yield savings accounts. But there are two other things to mention.

First, around the time of the inflation spike we saw in 2022, I decided to make Series I Savings Bonds, or I bonds, a part of my cash management strategy. The general idea is that I bonds have an interest rate that varies over time based on inflation data, so your money doesn't lose purchasing power over time.

Second, I currently don't have any money in CDs, but with rates widely expected to start falling later in 2024, I'm planning to change that. While CD yields aren't directly tied to the benchmark interest rates controlled by the Federal Reserve, they tend to move in the same direction. At some point in the next few months, my plan is to take some of the money in my high-yield savings account and use it to open a CD ladder of varying maturity terms.

There are other options available, including Treasury securities (bills, bonds, and notes), money market accounts, and more. I don't currently use any of them (although I'm sure some of the funds in my retirement account own Treasuries), but that doesn't mean my strategy won't shift as my financial situation and life circumstances evolve.

Your ideal allocation might be different

As I've mentioned already, this is just what I do with my bank accounts. I'm an active investor and want to be able to put money in my brokerage account whenever I see an opportunity, so that's why high-yield savings accounts are my top choice right now, even though I could probably get a slightly better yield from a 1-year CD.

I might be more eager to put cash in CDs if I anticipated a major cash need within the next few years. For example, my oldest child is still about nine years away from college, but if she were two or three years away, I might shift some money into CDs to lock in a rate until I needed the money.

The bottom line is that in the current interest rate environment, there are plenty of excellent options when it comes to places to keep your cash. And the best combination for you depends on your circumstances.