Keeping a large amount of money in your checking account may seem like a good idea, but it actually has several drawbacks.
Rachael P., an experienced bank teller, shared the reasons why it is advisable to have no more than $3,000 in a checking account on the Go Banking Rates portal.
No interest earned on large balances
The main reason Rachael advises against keeping large amounts in checking accounts is the lack of interest.
“Why keep $10,000 sitting there doing nothing?” she asked.
Checking accounts are intended for short-term spending, not large sums that could be earning interest in another type of account or investment.
Greater access facilitates unnecessary expenses
Rachael observed that people with large balances in their checking accounts tend to spend more frivolously.
“It’s like having a smoothie in front of you all the time, you’ll keep drinking even if you don’t need it,” he said.
Separating money into different accounts makes it psychologically more difficult to spend funds intended for other purposes.
Account opening bonuses are lost
Many financial institutions offer lucrative bonuses, of $200 or more, just for opening new accounts and maintaining a minimum balance.
If you already have a large amount in your checking account, you miss out on the opportunity to take advantage of these incentives.
Your money is not as safe as you think
Despite the safety of banks, FDIC insurance only covers up to $250,000 in the event of a bank failure. Any amount above that is not protected.
Keeping large sums in a checking account unnecessarily puts your money at risk.
There is no opportunity for capitalization
“The miracle of compounding only works if your money is invested and generating returns,” Rachael shared.
Keeping a lot of money in a checking account prevents you from taking advantage of money growth over the years.
Even a savings account with good interest could earn you hundreds or thousands of dollars more a year than a regular checking account.
May affect mortgage and loan approvals
During the underwriting process, banks and lenders are wary of excessive funds in checking accounts.
They want to see a clear separation between assets, investments, and funds earmarked for down payments or reserves. “If they see $50,000 in your checking account, they’ll wonder if that money should be dedicated to another part of your finances,” Rachael explained.
You may become a target for fraud
“As sad as it is, sometimes having a large checking account balance makes you a target for scammers both inside and outside the bank,” Rachael warned.
She had seen how professional scammers become skilled at studying account balances and finding ways to steal large amounts.
Although no amount guarantees 100% security, smaller balances tend to go unnoticed more easily.
Why not specifically have more than $3,000 in your checking account?
The recommendation of not having more than $3,000 in your checking account is because it is a good balance between having enough money to cover daily expenses and not having too much money without earning interest.
With more than $3,000, you could be missing out on earning more money by keeping it in a savings or investment account.
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