I have $12K in my checking account and I was told by my bank that's too much — here's how you can better use that cash stash to build wealth and secure your finances

How much should I keep in checking?

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You’ve been stashing some extra cash in your checking account, but you now have about $12,000 saved up. You want that cash to be easily accessible for groceries, bills, and unexpected expenses. But a representative from your bank tells you that it’s too much money to have in a checking account.

Are they right? And if so, how much should you keep in there? It all boils down to the most important thing: your monthly expenses.

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Keep enough to cover monthly bills

If you don’t already have a budget, figure out how much you need to live on each month, from your mortgage or rent to car payments, utilities, groceries, and other miscellaneous expenses.

Some monthly costs are unavoidable, especially when it comes to your transportation and the roof over your head. While you can’t control some of these expenses, insurance is one area where you might be able to trim some of your monthly costs.

The costs of owning a car have been on the rise and that includes insurance. The average cost of auto insurance has risen 16.5% over the last year, according to the U.S. Bureau of Labor Statistics.

And Americans are clearly looking for better options. According to a survey by Autoinsurance.com, about 37% of respondents are looking to get a quote from a new insurer, while 27% have switched or are planning to switch to a different insurance company.

If you need to shop around, OfficialCarInsurance.com can help you compare rates for free.

Just answer a few quick questions and the platform will sort through leading insurance companies in your area, including top providers like Progressive, Allstate and GEICO, ensuring you find the lowest rate possible.

Home prices and housing costs have risen sharply over the last few years. Even the median annual homeowners’ insurance costs have risen by roughly 20% between 2021 and 2023.

So, whether you are a homeowner or are currently saving up to buy a home —- home insurance costs are something you need to budget for. If you want to shop around to make sure you aren’t overpaying, BestMoney makes shopping for home coverage fast, simple and affordable.

BestMoney’s easy-to-use platform helps you find the best home insurance rates in your area. All you need to do is answer a few quick questions about yourself and your home, and you’ll see a list of quotes for you to compare. In just a few clicks, you can find the best policy for your needs.

Many financial experts recommend keeping enough money in your checking account to cover one to two months’ worth of expenses.

So, if your bills work out to $2,500 a month, you’d want to have about $5,000 in your checking account. If you’re a seasonal or gig worker, you may want a bit more, just in case you’re having a slow month (or you’re waiting to get paid).

It’s a good idea to have a bit of a buffer so your account doesn’t dip below $0 or the minimum balance and you end up paying fees.

Read more: 5 ways to boost your net worth now — easily up your money game without altering your day-to-day life

Make your extra cash work for you instead

While it’s important to have a buffer, you don’t want too much of a buffer. If you live on about $2,500 per month, but have $12,000 sitting in your checking account, that money isn’t working for you. In fact, with inflation, your money might actually lose value over time.

That’s in part because most checking accounts don’t offer high interest rates. The national average interest rate on a checking account in the U.S. is just 0.08%, according to the Federal Deposit Insurance Corp. (FDIC).

Ideally, you want to earn enough interest to at least keep up with inflation — and, better yet, make a profit. While the current rate of inflation has come down significantly over the past couple of years, sitting at 2.4% as of Sept. 2024, it’s still significantly higher than the median interest rates offered by large banks.

If you want to compare savings options, check out the Moneywise Best High-Yield Savings Accounts to see a list of accounts that have interest rates higher than the national average APY of 0.46%.

If you have $12,000 in your checking account, you could leave about $5,000 to cover two months’ worth of living expenses. That leaves $7,000 for saving and investing.

A certificate of deposit (CD) is a low-risk option

A certificate of deposit is a low-risk savings account that could earn as much interest as a high-yield savings account, possibly more. However, to earn that higher rate, you’ll have to park your money in the account for a certain period of time.

For instance, Discover offers certificates of deposits with maturities ranging from three months to 10 years.

Right now, Discover is offering 4.10% APY on a 12-month term - much higher than the average 0.05% APY offered on some accounts offered other by big banks across the U.S.

[Discover CD has no fees] associated with its CD accounts and you don’t need a minimum deposit to open an account.

Invest your spare change

Certificates of Deposits are definitely a gateway to investing - especially for risk-averse investors. But if you want higher returns, branching out and diversifying your portfolio with equities might be a good strategy.

You don’t have to dive head-first into investing, especially if you are unsure about which stocks to pick. The best strategy is to start small - investing small amounts of money until you gain some experience or build an appetite for risk.

For example, Acorns offers an app that allows you to use everyday purchases to save and invest for the future. When you make a purchase on your credit or debit card, Acorns automatically rounds up the price to the nearest dollar and places the excess into a smart investment portfolio.

For those looking to add more to their retirement nest egg as well, Acorns offers different tier memberships, including a gold tier that allows you to customize your portfolio by adding individual stocks and includes a retirement account with a 3% IRA match. The company also offers Acorns Checking for emergency savings, Acorns Later for retirement planning, and Acorns Early to save up for your children’s future are also available.

If you sign up for Acorns today, you can receive a $20 bonus investment.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.