This Is Why I Keep Almost No Money in My Checking Account

For as long as I can remember, I've never kept more than what my monthly budget calls for in my checking account. Over the years, I've treated checking accounts as a kind of layover for my paychecks. It's not the final destination but a hub that transfers money to different places, like my IRA or savings account.

Some people disagree and stash lots of cash in their checking accounts. I can understand their reasoning: Checking accounts offer easy access to cash and are often more flexible than, say, a CD or high-yield savings account. But for as much as a checking account can make you feel secure, here are two reasons why I would advise against storing too much cash there.

Checking account money is too easy to spend

Like it or not, checking accounts make it easy to spend money. Without the added friction of transferring money out of a savings account, this could lead you to squander your hard-earned cash.

To be clear, easy access is fine if you have a purpose for your money. For example, if you're moving into a new house, you'll need cash on hand to cover the expenses. But without a purpose or plan, you can become tempted to spend money instead of saving it, leaving big personal finance goals, like saving for a home down payment or retirement, untouched.

If unused cash is burning a hole in your pocket, you could restrict access -- not to mention earn high interest -- with a certificate of deposit (CD). CDs offer you a competitive interest rate in exchange for locking your money up for a certain period, like 12 months. Often, CDs have early withdrawal penalties, which could discourage you from touching your money. Even a short-term CD, like 3 to 6 months, could help you capture interest without locking your money up for long periods.

Interest is essentially null

Even if you're not a big spender, stashing cash in your checking account is inefficient for the rock-bottom rates these accounts pay -- if they pay interest at all.

In comparison, today's top-paying savings accounts offer lucrative rates that can help your money grow with (or outpace) inflation. Don't overlook that. If inflation has affected your household budget, today's high-yield savings accounts can help you offset higher costs with money earned on interest.

Of course, savings accounts add some friction between you and your money. Some high-yield savings accounts even restrict how many times per month you can withdraw money and how much you can take out daily, weekly, or monthly. If access is important to you, a money market account (MMA) could be the perfect middle between flexibility and high interest. These accounts have attractive interest rates and may come with debit cards or check-writing privileges. Some banks will even let you set up direct deposits in an MMA, which could bypass using a checking account as a middle ground.

That said, certain checking accounts will offer high interest on your deposits. Check the fine print, however, as some may earn high interest up to a certain amount (like $1,000), whereas others will require large minimum balances to activate the high APY.

Keep only as much as you will spend

To be sure, I do keep money in my checking account. I know in advance how much we're going to spend for the month and I keep only that to cover bills and rent. If we have money left over when the month ends, we divvy it up between my IRA and our down payment fund (a high-yield savings account). I also like to keep at least $100 in the checking account. That way, I don't risk overdrafting the account.

Even if you're hesitant about moving money into accounts with less access, there are still strategies that could give you greater flexibility without missing out on high interest. Take care not to depend solely on your checking account, and keep your options open so you can outpace inflation and prevent yourself from overspending.