If you ask 100 different finance experts how much cash you should keep in the bank, you’ll get 100 different answers. Some will say to keep all your money in the bank at all times, while others will say to keep only enough money to cover your regular expenses. There’s no definitive answer, but there are certain principles you can follow in order to make sure you’re making the right decision. This guide will help you decide how much cash you should keep in the bank based on your personal situation and your financial goals.
How much cash should you keep as a percentage of your net worth
A common rule of thumb is to keep three to six months’ worth of living expenses in cash, but this may not be enough depending on your circumstances. If you have a lot of bills or other expenses that need to be paid on a regular basis, you may want to keep more cash on hand. Additionally, if you have a lot of cheques that need to be deposited, you may want to keep more cash in the bank so that you can cover these deposits. Ultimately, it’s up to you to decide how much cash you should keep in the bank, but talking to a financial expert can help you make the best decision for your situation.
The best way to figure out how much cash you should keep on hand is to take a look at your financial goals and needs. For example, if you are planning to buy a car or pay off debt, it may be worth keeping more money in cash so that you can cover those expenses as soon as possible. On the other hand, if you have an irregular income stream or don’t receive any bills until they are due, it may be worth keeping less cash on hand to give yourself room for financial flexibility. Alternatively, if your employer offers direct deposit into your bank account, it might not make sense to keep a large amount of money in cheques at all times since most banks will provide interest on excess balances that aren’t being used for regular deposits.
What if you’re not making money?
If you’re not making money, it’s important to have a financial cushion to fall back on. How much cash you should keep in the bank depends on your unique situation, but most financial experts recommend having at least three to six months of living expenses saved up. This way, if you suddenly lose your job or have an unexpected medical emergency, you’ll have the money you need to cover your costs.
The most important factor to consider when you’re trying to decide how much cash you should keep on hand is your monthly expenses. For example, if you need $3,000 per month to cover all of your costs, then it would be ideal to have three months’ worth of expenses or $9,000 saved up. This way, if an emergency happens and you lose your job or encounter some other financial hardship and are forced to live off of only $3,000 for a few months until you can get back on your feet, you won’t be completely financially ruined. The more stable your income and finances are overall, however, the more relaxed you can afford to be with how much cash you keep in reserve.
Most financial experts recommend having an emergency fund that can cover at least three to six months of living expenses. The goal is to have enough money saved so that you’re not one unexpected event away from financial ruin. Figure out how much you need to save by looking at your monthly expenses and multiplying it by three (or more, if you live in a high-cost area or have a lot of debt). Once you know how much you need, start stashing away cash until you reach your goal.
Be sure to keep your emergency fund separate from your regular savings, which should be used for more short-term goals like purchasing a car or a home. If you use your emergency fund for something other than emergencies, such as an unexpected vacation, you’ll need to replenish it sooner rather than later. When looking at where to keep your money, consider a high-yield savings account that offers more interest than a traditional checking account. Not only will it help you save for future goals, but it may also generate some extra income on top of what you’re saving.
Money Market Accounts and CDs
Keeping your money in a savings account is a safe bet, but it may not be the most profitable use of your money. Money market accounts and CDs offer higher interest rates than savings accounts, but there are some risks involved. With a money market account, you may be able to write checks and use a debit card, but you’ll be limited to six withdrawals per month. With a CD, you’ll earn a higher interest rate, but you won’t be able to access your money until the CD matures.
If you’re considering a money market account or CD, look for one with higher interest rates and lower fees. Be aware that some banks will try to lure you into their accounts with promises of higher interest rates, but tack on hefty fees once you’re a customer. If you decide to open an account, choose an institution that doesn’t charge monthly service fees—or negotiate to have them waived—and check whether there are any penalties for early withdrawal.
Savings Account Interest Rates
According to recent reports, the average savings account interest rate is a measly 0.09%. That’s not even one tenth of a percent! This abysmal rate is likely due to the Federal Reserve’s target for the federal funds rate, which is currently 0.25%. The federal funds rate influences other short-term rates, like the one for savings accounts. When it goes down, so does the savings account interest rate.
Thankfully, there are alternatives to 0.09% savings account interest rates. One alternative is a money market account. Money market accounts give you unlimited transactions just like a checking account and are FDIC-insured up to $250,000 per depositor. They’re also much more liquid than standard savings accounts because they allow you to write checks against your balance, which means you can always access your money when you need it. On top of that, their APYs (annual percentage yields) tend to be slightly higher than what you’d get from an average savings account—although not by much! The most competitive ones usually offer about 1% APYs, or a rate of 1% per year.
Banks have Low Interest Rates
Historically, banks have offered low interest rates on savings accounts. This is because they want to encourage people to save money. In recent years, however, interest rates have been rising. This means that you can earn more money by keeping your cash in a high-yield savings account or investing it in a short-term CD.
The amount of cash you should keep in your bank account is influenced by several factors. One important consideration is how high your interest rate is. If you have an interest rate higher than what banks are currently offering, it makes sense to keep your money there. Another factor is how long you want to hold onto your savings before using them. Savings accounts and CDs both offer limited liquidity, so if you need access to cash within a few months, it may be better to invest it elsewhere or even use a checking account instead of a CD.
High Interest Rate Investment Products
There are a lot of high interest rate investment products available to choose from these days. But before you jump into any of them, it’s important to know how much cash you should keep in the bank. Depending on your situation, you may want to keep anywhere from 3-6 months’ worth of living expenses in a savings account. This will help you cover unexpected costs and avoid racking up debt.
It’s important to note that there are no guarantees when it comes to high interest rate investment products. If you’re willing to take on some risk, then these might be a good way to invest. Just make sure you have an emergency fund of 3-6 months’ worth of living expenses tucked away safely in your savings account before you start taking risks with your cash. This will help you avoid debt and keep peace of mind. To learn more about how much cash to keep, ask yourself what would happen if:–My car broke down and I had to buy a new one on short notice.