Keeping an Extra $5K in Your Checking Account? Here's Where You Should Move It

Many people keep some extra cash in their bank account for extra security. Even if you budget well, unexpected bills can pop up, so having extra money in your account is a solid strategy to avoid overdrafting your account. But you shouldn't keep all your money there.

For most people, their checking accounts don't earn interest. That's why keeping any savings in a savings account is best so you earn interest. Any extra money made through interest can be a win for your personal finances.

Do you have an extra $5,000 stashed in your checking account? I'll explain why you may want to transfer that money to a high-yield savings account.

Interest increases your bank account balance

Most checking accounts don't offer rewards or interest, so there is little incentive to keep your savings there. But if you transfer your emergency fund savings into a bank account that earns interest, your money will grow over time without doing any work.

When researching savings accounts, review the annual percentage yields (APYs). Banks use APY to describe the returns customers can expect by keeping their money in a savings account for one year. Rates can vary significantly, so comparing the rates is essential.

You're probably missing out on extra cash

So, how much interest are you missing out on by stashing an extra $5,000 in your checking account? It's likely more than you realize. In the below table, I'll show you how much money you could earn by moving your $5,000 savings to a high-yield savings account for one year.

To calculate how much interest you'll earn, multiply your deposit ($5,000) by the APY your bank offers. This will show you how much money you'll earn in interest if you keep the money in your savings account for one year.

I used a 4.65% APY for a high-yield savings account for the following calculations. The bank accounts on our best high-yield savings accounts list have APYs ranging from 4.25% to 5.25%.

You'll earn even more thanks to compound interest

Earning $232.50 in interest in one year is a big deal. But you can earn even more than that long term. The longer you keep your savings in the bank, the more you can make, thanks to compound interest -- or interest you earn on interest.

To illustrate how compound interest works, I'll outline how much money you can make by keeping your initial $5,000 deposit in a high-yield savings account for anywhere from one to three years.

The below calculations assume you make no additional contributions beyond the initial deposit. But you can boost your earnings if you continue to put more money into your account. Automating the savings process can save you time as you save regularly.

Here's a breakdown of the potential earnings:

That's an extra $730.44 earned in three years, assuming the APY on your account doesn't change. You should be aware that APYs can change over time, so your APY will likely fluctuate. As you can see, it pays to keep your extra savings in an interest-earning bank account.

Taking this one step can be a win for your finances

IIf you have been saving for emergencies or planned future expenses, don't miss out on interest. Open a high-yield savings account and stash your savings there to boost your bank account balance as you earn interest. This one simple move can be a win for your finances.