4 Signs You Have Too Much Money in Your Checking Account

Not many people would say that having “too much” money in any account is a problem. But if it’s all in your checking account , it can be.

The problem doesn’t come from having “too much money” — it comes from where it is. If you have all of your money in a checking account, you’re doing yourself a huge disservice financially.

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As many Americans struggle with saving for retirement and even paying for their basic needs, it pays to optimize your financial situation as much as you can. In that sense, having too much money in your checking account is a financial planning no-no.

Here’s how to tell if you have too much money in your checking account and why it can be a problem .

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You Have More Than Two Months’ Expenses in Your Checking Account

Checking accounts are useful financial instruments, but you should use them to serve two primary purposes only — accepting deposits and paying bills.

If you have more than two months of expenses in your checking account, the bulk of your money will end up just sitting there. As even the best checking accounts don’t pay much in terms of interest, that idle cash should be moved to more productive accounts.

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You Don’t Have an Emergency Fund

If you have a lot of money in a checking account but no emergency fund, that’s a key sign that you need to make a change.

For starters, you should always keep your emergency money separate from your day-to-day funds, if for no other reason to avoid spending it.

Your emergency funds should also be earning a higher level of interest than you can get in your checking account. Typically, experts recommend you put your emergency fund into a high-yield savings account, which as of October 2024, generally pay 4% or more.

Set aside enough money from your monthly paycheck to fund an emergency fund with at least three to six months’ worth of expenses rather than letting it accumulate in your checking account.

You Don’t Have a Retirement Fund

Even if your checking account pays interest, it’s not enough to fund your retirement.

While the S&P 500 stock index has a long-term average annual return of about 10%, the average interest-bearing checking account only pays a meager 0.08%, according to the Federal Reserve Bank of St. Louis .

And many checking accounts pay no interest at all. Thus, if you have a sizable checking account balance and no retirement fund, it’s time to reallocate some of your funds.

You’re Spending Too Much Money

This may seem counterintuitive, but if you find yourself spending more money each month on discretionary items, it might be a sign that your checking account is overfunded.

Human nature is such that if you find “extra” money in your checking account after paying all of your bills, you might be tempted to simply spend it.

To avoid this scenario, always “pay yourself first” — allocate money to your emergency fund, retirement account and other savings goals before you even pay your bills.

Budget your income and expenses and learn to live off the amount that’s left over after you save, rather than reversing the process and saving “whatever is left” at the end of the month.

This article originally appeared on GOBankingRates.com : 4 Signs You Have Too Much Money in Your Checking Account