Banking

How much money should you have in a high-yield savings account?

A checking account and a savings account are two basic, but very important, accounts for managing money. And while there isn’t any one “correct” way for an individual to manage the money in their checking and savings accounts, there are some general rules of thumb that can help you figure out how much money you should have in each account.

“Like many Americans, you may default to leaving extra funds in a traditional checking or savings account,” says Dan Stampf, a CFP® and Vice President of Advisory Solutions for Personal Capital. “Maybe you haven’t decided how to allocate it to investment accounts. Perhaps you’re stowing away money for a rainy day or emergency fund. Or you could be building up savings for a short-term goal like funding a wedding or a vacation.”

It’s important to note that you’re essentially losing money if you allow that cash to just sit in a low-yield checking account, as the value of your money is being eaten away by inflation and you’re missing out on higher interest payments from a high-yield savings account. This is why high-yield savings accounts are generally recommended as a vehicle for keeping savings, including your emergency fund.

Some checking accounts, like the Ally Interest Checking Account or the Capital One 360 Checking® accounts do offer slightly higher interest rates compared to traditional checking accounts, but the interest is still lower than what high-yield savings accounts offer.

How much money should you keep in a high-yield savings account?

Of course, you do want to make sure you’re investing — and not only saving — so you can reach long-term goals like retirement. So you do have to draw a line between how much you should invest versus keep in a savings account.

“Everyone’s financial situation is different and the amount of cash you have on hand will depend on your life stage and savings goals,” Stampf says. “As a general rule, consider aiming to have six to 12 months worth of liquid cash or cash alternatives, so you can withdraw from those if needed without touching your [investment] portfolio.”

Avoid over-saving

Stampf also cautions against over-saving for emergencies since keeping too much cash on hand could mean not having enough of your money invested, which could potentially undermine your retirement goals or other investing goals.

You can avoid over-saving by targeting a specific number for your emergency fund. Maybe a fully funded emergency account for you means having six months’ worth of necessary expenses saved; take your monthly expenses and multiply that by six to find your target amount. You might also consider using a budgeting app, like Mint or Personal Capital, to help you figure out what your total monthly expenses look like.

And of course, a high-yield savings account is also the best way to save for large expenses that you foresee having to make in the near future (1–3 years). It’s prudent to make sure you save for these expenses on top of your fully-funded emergency account money. And the higher interest rates let you grow your balance just a little quicker. Select ranked the Marcus by Goldman Sachs High Yield Online Savings as the best account for no fees.

Marcus by Goldman Sachs High Yield Online Savings

Goldman Sachs Bank USA is a Member FDIC.

  • Annual Percentage Yield (APY)

  • Minimum balance

    None to open; $1 to earn interest

  • Monthly fee

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D

  • Excessive transactions fee

  • Overdraft fees

  • Offer checking account?

  • Offer ATM card?

The SoFi Checkings and Savings also stands out since it offers a welcome bonus after you setup and receive direct deposit payments. You can earn anywhere from $50 to $300, depending on the amounts of your direct deposits in a 30-day period.

SoFi Checking and Savings

Information about Sofi Checking and Savings has been collected independently by Select and has not been reviewed or provided by the issuer prior to publication.

  • Monthly maintenance fee

  • Minimum deposit to open

  • Minimum balance

  • Annual Percentage Yield (APY)

    Members with direct deposit earn 3.00% APY on savings and Vaults balances, and 2.50% APY on their checking balances. Members without direct deposit will earn 1.20% APY.

  • Free ATM network

    55,000+ fee-free ATMs within the Allpoint® Network

  • ATM fee reimbursement

  • Overdraft fee

    No-Fee Overdraft Coverage is available; however, SoFi requires $1,000 of monthly direct deposit inflows to unlock it

  • Mobile check deposit

Pros

  • No minimum deposit to open an account
  • 1.80% APY with direct deposit
  • 2-day-early-paycheck automatically when you set up direct deposit
  • Save your change automatically with Roundups and set savings goals with Vaults
  • Get up to 15% cash back at local establishments
  • No foreign transaction fees

Cons

  • No reimbursement for out-of-network ATM fees
  • Not a standalone checking or savings account

Bottom line

A high-yield savings account can sometimes be a happy medium between investing for the long-term and keeping liquid cash on hand for shorter-term large expenses, but it’s still important to avoid over-saving. ]

Stampf recommends keeping six to 12 months’ worth of expenses in a high-yield savings account for easy access to cash in case of an emergency and saving for larger expenses that are are coming in the short term, like buying a home. Of course, you’ll want to also consider your stage of life and your needs when determining how much money to keep in a high-yield savings account.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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