Bad idea to keep 30K in checking?

[deek]

Question for you guys. I have over 30k in checking, but it's because I earn 1.24 APY on my checking with my credit union. Are there better methods of having my $$ earn more money outside of my checking? Should I be immediately maxing out my 2020/2021 IRA? Any other recommendations?

[NotJen]

What does that 30k represent?

I have kept $30k in high-yield checking/savings accounts before - it represented my EF - as a solo earner, I wanted a year of expenses away from my investments in case of a job loss.  I currently have way more than that in a checking account (to fund my next 5 years of FIRE "tax free").

Why haven't you already maxed your 2020 IRA contributions?  Why aren't you already contributing to your IRA for 2021?

[jrhampt]

There are many reasons why one might keep 30k in checking:

emergency fund
need it within the relatively short term - say, 6 months for something like a down payment etc
have already maxed out everything else (401k, hsa, etc.)

It's not a totally optimal use of cash, but you should DEFINITELY be maxing out your retirement options **first** if you can afford to have that much in cash sitting around.

[afox]

IMO, there is a security risk in having large amounts of cash in a checking account with online access, paper checks with account numbers on them, debit cards etc...

I opened a savings account at my bank with NO ONLINE access, with no debit cards, a few checks that are stored safely (no cashed checks rolling around with account numbers on them). When I have large amounts of cash I store it in this "hidden from the online world" savings account and transfer money to checking/investment accounts as needed.

I recently called a bank to transfer funds from one account to another and the rep on the phone said they needed verify that it was me on the phone, they asked me for a phone number they could send a secret code to. THEY ASKED ME FOR A PHONE NUMBER!!! I could have been anyone and given them any phone number. I asked how this caller provided phone number verification process adds any security at all, no answer given, it was like asking your pet cat to explain banking. I gave them a phone number I know they do not have on file, they sent the code to that phone number no problem. The companies that we entrust our stash to are sometimes/often incompetent.

[ohio4life]

I have often held large cash reserves in my checking because of plans to spend it on this or that. As a naturally frugal person, this has cost me a lot of money, because I don't make big purchases very quickly. I'm slowly depleting a pretty big checking account balance that has remained somewhat high since 2018 with home renovation and weekly bond fund buys in my taxable brokerage (all tax advantaged accounts are maxed). I am trying to get my bond asset allocation in investment accounts up to 20%. I am questioning that move every single day, but it seems with stock prices at record highs it can't be the worst decision for now. I'm considering letting my bond asset allocation drop back closer to 10% over the next several years as I have less reasons to be worried about potentially accessing any of this stash at all pre retirement. I have 10% of my gross annual earnings in a cash emergency fund (4 or so months of expenses) and my brokerage account is now equal to one year of gross annual earnings (another 24 months of expenses after estimated taxes), so I am not sure I have much to worry about. This bond allocation thing has constantly been on my mind and has bothered me more than having cash on hand. I think for me having cash brings a lot of confidence that things will be OK no matter what, so it is probably a personal preference issue more than a hard rule once you have a bit of a stash and a high savings rate.

[Metalcat]

Depends on what you are actually asking.

Are you asking about the security of the account or the opportunity cost of not investing it.

Those are completely different questions.

[renata ricotta]

In addition to the considerations above, I think it depends on what % of your stash it is. I currently have $30k in checking because I just bought a house and liquidated a bit more than I needed from my brokerage acct for the down payment, so I could make home repairs and buy some furniture. Turns out the repairs were way cheaper than expected so I have it just kind of hanging out for a bit. I'm going to leave it there to pay for some expenses likely to come up in the next couple of months, but it's in all likelihood going to keep growing and I'll need to invest some of it. I'm already maxing all taxable accounts. But, it's only about 3-4% of my net worth so it seems less crucial to have it working hard at every moment; I already have lots of other money working hard.

[rantk81]

they asked me for a phone number they could send a secret code to. THEY ASKED ME FOR A PHONE NUMBER!!!

Sounds like they adhere to zero-factor-authentication :P

[ender]

We have a bunch in checking.

Mainly because we keep accumulating cash there since apparently even with all the savings we do automatically we still save.

[moneypitfeeder]

If you are keeping a large amount in checking, many small, local credit unions are offering Kasasa checking, they have different options (and there are "rules" for each) but you can potentially get a better interest rate on your account, while keeping it in an easily accessible checking account. The rates vary widely, here, I'm waiting before I pull the plug an add it. The Kasasa interest rate at my union is higher than the banks' normal money market by a little bit, but less than many nation-wide. Might be worth looking into: https://www.kasasa.com/

[GodlessCommie]

Which CU pays more than 1% on checking balance?

[moneypitfeeder]

The rates change all the time (my local CUs rates aren't the best right now) but just on a quick search there is one CU offering 4.25 or 3% APY on a max of $25,000 depending on the other qualifications. The Kasasa accounts have "rules" about if you have to have direct deposits or how many debits you make, etc. https://www.kalsee.com/save-and-spend/free-kasasa-checking

[Nutty]

I asked the same question with lumber prices and me not being ready for renovation.  I stuck it into a brokerage account and will try to fund the first little bit out of pocket.  I picked a Muni bond fund and figure it will be 6 months before I spend it.  The other option is the high interest savings account but mine is offering 0.5%.

I'd rather have my money working harder for me but this is short term.

[JJ-]

Well now I'm curious. What's the going recommendation for keeping monthly expenses in checking/savings accounts if you have regular income and are not saving for whatever it may be?

 1x? 2x? 0.5x

[NotJen]

Well now I'm curious. What's the going recommendation for keeping monthly expenses in checking/savings accounts if you have regular income and are not saving for whatever it may be?

 1x? 2x? 0.5x

Whatever makes you comfortable?  I don’t think there is a standard rec.  I always kept a $1k buffer in my main checking account when I was working.  Anything over that was invested monthly.

[Syonyk]

Well now I'm curious. What's the going recommendation for keeping monthly expenses in checking/savings accounts if you have regular income and are not saving for whatever it may be?

How tightly do you want to manage your finances and how much "random stuff" do you have coming out?

I tend to let mine float fairly high (several months worth of expenses, typically), because it means I don't really have to worry about what's in there - there's always more than enough of a buffer for any sort of expenses that come up.  It's a combination "emergency fund" and "opportunity fund," and means that if something interesting comes up, I've got the cash to jump on it.  It also means I don't really have to worry about things like insurance payments, property tax, etc.  I just pay them as the bills come in, and that a bunch of them come due in the same month doesn't bother me.  There's money to cover it.

I'm sure it's not "maximally optimal," but it means I can mostly ignore it and focus on other things.  Every few months, if it's higher than I think I need, I sweep a bunch out into various other places, or we take the next step on property improvements (I'm planning a large deck this year and not looking forward to the lumber costs, so we've got a buffer for that).  I'm at a point in my life where I can do this and it doesn't really have a huge impact on things.  When I was younger, I sure kept a tighter leash on things, but now... things are set up so I just don't have to think about it.

[JJ-]

How tightly do you want to manage your finances and how much "random stuff" do you have coming out?

I tend to let mine float fairly high (several months worth of expenses, typically), because it means I don't really have to worry about what's in there - there's always more than enough of a buffer for any sort of expenses that come up.  It's a combination "emergency fund" and "opportunity fund," and means that if something interesting comes up, I've got the cash to jump on it.  It also means I don't really have to worry about things like insurance payments, property tax, etc.  I just pay them as the bills come in, and that a bunch of them come due in the same month doesn't bother me.  There's money to cover it.

I'm sure it's not "maximally optimal," but it means I can mostly ignore it and focus on other things.  Every few months, if it's higher than I think I need, I sweep a bunch out into various other places, or we take the next step on property improvements (I'm planning a large deck this year and not looking forward to the lumber costs, so we've got a buffer for that).  I'm at a point in my life where I can do this and it doesn't really have a huge impact on things.  When I was younger, I sure kept a tighter leash on things, but now... things are set up so I just don't have to think about it.

Whatever makes you comfortable?  I don’t think there is a standard rec.  I always kept a $1k buffer in my main checking account when I was working.  Anything over that was invested monthly.

We have had anywhere between 1-5x expenses and 5x seemed a bit unnecessary given how little our monthly expenses fluctuate. We're down to 1.5x in checking now and at the end of the month anything over that amount goes into a taxable account. I keep moving it lower but think I've found a good sweet spot for me, comfort wise.

 Thanks to both of you for your thoughts.

[Metalcat]

I wonder if @deek is ever coming back to their own thread?

[Captain Cactus]

I would LOVE to know where I can get 1.24% fdic insured right now.  The credit unions in Connecticut are all proud of themselves their their .2% rate.

[kpd905]

I would LOVE to know where I can get 1.24% fdic insured right now.  The credit unions in Connecticut are all proud of themselves their their .2% rate.

Here are a few options: https://www.doctorofcredit.com/high-interest-savings-to-get/

[EricEng]

I wonder if @deek is ever coming back to their own thread?

That seems to happen a lot.  People post a question and never return to their thread.  I expect it from those with less than 10 posts who are just flying by, but little surprised when it is folks with a fair number of replies.

[lthenderson]

IMO, there is a security risk in having large amounts of cash in a checking account with online access, paper checks with account numbers on them, debit cards etc...

The FDIC insures all bank depositors up to $250,000 which covers theft and hacking.

[lthenderson]

Question for you guys. I have over 30k in checking, but it's because I earn 1.24 APY on my checking with my credit union. Are there better methods of having my $$ earn more money outside of my checking? Should I be immediately maxing out my 2020/2021 IRA? Any other recommendations?

The ideal amount of money to put in your checking account is whatever amount lets you sleep well at night knowing you are prepared for most emergencies. For me, that magical number is $100,000 and comprises a year's worth of expensive and savings for a big ticket item purchase at a moment's notice. But I already financially independent and somewhat retired with a spouse that doesn't want to retire. When I was a young buck with less obligations, that amount was a fraction of today's amount.

[deek]

I wonder if @deek is ever coming back to their own thread?

I'm back. I appreciate all the insight here. The more I've thought about it, I think 20-30k is a pretty solid amount to keep available in checking, but I don't see much reason to raise that amount. I was able to max out my 2020 IRA and am close to maxing out my 2021 as well. I have a little side hustle that has made this possible. I think 25k is what I will be planning on keeping on hand and anything extra will go to my Vanguard IRA/the balance of my student loans/my hobbies & side hustle/rent.