Why I Always Keep an Extra $1,000 in My Checking Account

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KEY POINTS

  • Although I have a robust emergency fund, I hate dipping into it.
  • Having extra money in my checking account helps me avoid the stress, frustration, and disappointment of tapping my savings.

It saves me a lot of mental anguish.

One important financial lesson my parents taught me early on was to always have money in savings for emergencies. Unfortunately, a recent SecureSave survey found that 67% of Americans do not have money in the bank to cover an unplanned $400 expense. But I make a point to keep enough cash in my savings account to not only pay for about a year's worth of bills, but also, cover some home or car repairs.

The reason I err on the side of having extra savings is multifold. First, I'm self-employed. My income streams could be cut at any time, and if that happens, I won't be eligible for unemployment benefits. So I need extra money in savings in case something like that happens.

Also, I don't have family I can turn to for financial support. So if my income were to shrink or disappear, I'd be extremely reliant on my savings during that time.

But even though I've built a nice amount of savings, I really, really hate having to dip into it. And that's why I make a point to keep extra money in my checking account.

A system that works well for me

The money in my checking account basically earns no interest, so I don't like to keep too much extra cash in there. Rather, what I do is make a point to keep about an extra $1,000 in my checking account at a minimum beyond what my monthly bills cost. That way, I'm not losing out on too much interest, but I also have a little cushion in case I'm stuck footing the bill for a home or auto repair.

Now you may be thinking, "If you have all that money in savings, why not dip into it?" But the reason has to do with the fact that tapping my savings bothers me, whereas for some reason, taking an extra withdrawal from my checking account does not.

In my mind, the money in my checking account isn't really mine -- it's all earmarked to pay bills. Some of those bills may not be immediate, but that's what the money is there for.

Even though my savings are earmarked for emergencies, I tend to consider that money mine. And I don't like to let it go.

In fact, I actually have a separate savings account with money for vacations. That's another account I don't mind withdrawing from. But since it bothers me to take money out of my emergency fund, I try not to do so unless, well, I'm hit with an emergency. And padding my checking account allows me to access some money when I need it without feeling as bad about it.

A smart move to make if your checking and savings accounts are at separate banks

I happen to hold a checking account and savings account at the same bank, which means I can generally transfer money from one to another instantly. But if you have your checking account at one bank and your savings account at another, then it really does pay to keep extra cash in your checking account in case you run into a jam.

It might take several days for a transfer from your savings account to go through. And if you need to write a check or swipe your debit card before then, you could run into trouble.

But of course if you're like me and hate seeing money leave your savings account, that's reason enough to pad your checking account, too.

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APY: 4.25%

Rate info Circle with letter I in it. 4.25% annual percentage yield as of July 22, 2024

APY: 5.26%

Min. to earn APY: $1

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