And that could make a world of a difference over time. That's still a lot higher than the 4% you might get on the money you keep in a savings account. Now, let's be a little bit more conservative than that and assume your portfolio only delivers an average yearly return of 8%. The S&P 500 index, which consists of the 500 largest publicly traded companies, generated an average yearly return of 11.88% between 1957 and the end of 2021, according to Investopedia. For a risk-free deposit, that's not a bad deal.īut here's something to consider. These days, you might be able to score a 4% return on your money in a high-yield savings account. More: Save while you pay off debt with one of these top-rated balance transfer credit cards Save: This credit card has one of the longest 0% intro APR periods around And in the long run, that could really make a difference. But in exchange for that risk, you might manage to generate a much higher return on your cash than what a savings account will pay you. Investing, on the other hand, carries risk. Putting your money into a savings account means keeping it safe. Even when interest rates are higher like they are today, they might pale in comparison to the returns you manage to generate by investing your money in a brokerage account. That way, you'll have access to it whenever you need, and you won't have to worry about your principal contribution losing value.īut while it's good to have a nice amount of financial protection from emergencies, you don't want to make the mistake of putting all of your money into a savings account. And the best place to put that cash is a savings account. You'll often hear that it's important to have money set aside for emergency expenses, like home repairs, car repairs, or medical bills. This especially holds true if you can't move money from your savings account into your checking account in an instant.Check out our picks for best high yield savings accounts But it pays to keep a little extra beyond what you need to pay your bills. You definitely don't have to keep thousands of dollars in a checking account. If you move all of your money out of your checking account, and then someone cashes a $300 check you wrote, you could run into a serious problem. And so a better bet is to leave yourself a cushion in your checking account, whether it's an extra $500, $1,000, or $2,000.Īlso, you never know when you might write a check, forget about it, and have its recipient sit on it for weeks before cashing it. And in an emergency situation, you may not have several days. So in that case, leaving your checking account empty isn't necessarily the worst move.īut if you don't have both accounts at the same bank, it could take several days to transfer money from one account to the other. You may have the option to transfer money back and forth between the two accounts instantly. Let's say you have a checking account and a savings account at the same institution. Now, you may be thinking, "Oh, well in that case, I'll just transfer money from my savings account to my checking account, and it won't be a problem." And in some situations, that logic works. And so it's a good idea to have a little extra cash in your checking account for those unanticipated expenses. You might assume it's safe to empty out your checking account, since your incoming paychecks should be enough to satisfy your various obligations.īut remember, you never know when an unplanned expense might arise. Let's say you typically earn enough money each month to cover your bills in full. But while moving all of your money from a checking account to a savings account might seem like a good bet, it's a move that could actually backfire on you. Compare that to the 0% interest rate you might be getting in your checking account, and it's easy to see why you wouldn't want to keep a whole lot of cash there. These days, in fact, a number of high-yield savings accounts are paying interest upward of 4%.
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