3 Reasons I Don't Keep a Lot of Money in My Checking Account

A checking account isn't always the ideal place for your funds.

Like most people, I have a checking account that I get my paychecks deposited into as I earn money. But my checking account doesn't have a lot of cash in it -- just a small sum necessary to avoid the risk of overdrafting and to make sure my bills are paid.

My checking account balance isn't small because I'm broke. Instead, there are three other key reasons why I've opted not to keep a lot of cash in this account.

1. I prefer high-yield savings that provide better returns

My checking account does not pay me any interest because it was not designed to be an investment that produces a return. Instead, it is a repository for my money that I use to pay bills.

Since I'm not earning anything on cash I keep in my checking account, it doesn't make sense to keep a lot of money in there. I can move some of my cash over into a high-yield savings account where there is no risk of loss and which is FDIC insured (like my checking account) but produces a better return on investment.

2. I want dedicated accounts for each financial goal

Since my checking account is the place where I keep money to pay the bills, I don't want to keep my savings there. It would be too hard to figure out what money is allocated to covering routine living costs and what is being saved for bigger purchases or important financial objectives.

To make sure I am on track for my goals, and to help me stay motivated, I have opened up dedicated savings accounts for different things I'm working toward. I have a retirement account, for example, and it provides tax breaks for investing. I also have separate savings accounts for a vacation fund; to cover college for my kids; to pay for home repairs; to prepare for emergencies; and to pay for big purchases.

With these separate accounts, I can keep tabs on exactly where my money is, how much I have saved and invested, and whether I am going to hit my savings targets on schedule. I don't have to try to figure out where each dollar is supposed to go.

3. I don't want to make it too easy to spend money

Finally, money in my checking account is very easily accessible. I have a debit card that I can use to access cash, and I have checks that I can write to pay for things. All of this makes it easy to spend the money in the checking account -- which is kind of the point, since this is where I keep the funds allocated to bill paying and routine spending.

But I do not want my savings to be super easy to access because then I might be tempted to spend the money on other things. I prefer it to be in a savings account so I would need to manually go in and transfer the funds to checking before I can spend it. That way, I have to really think about whether withdrawing from savings is worth it.

For each of these three reasons, I will never keep more than is necessary in checking. Moving extra cash into savings has worked well for me, and it's a technique I would highly recommend.