Many people make the mistake of keeping all their money in a no-yield (or very low yield) checking account. As a kid I know that’s where all of my money was kept. A better option might be to move the money to an interest bearing checking account, savings account, or money market account (depending on how you plan to use the account) so that you keep your money working for you.
I look for the following in an online checking, savings, or money market account:
- Competitive rates
- Little or no fees
- FDIC insured
Bank rates fluctuate all the time. For this reason, I have a number of different checking, savings, and money market accounts and transfer the majority of my money to the accounts that are paying the most at any given time.
Checking accounts generally pay the lowest amount of interest but also allow the most flexibility regarding the number of checks you can write and the number of bank to bank transfers you can make.
Savings accounts generally don’t allow you to write checks but do normally permit bank to bank transfers and pay much more interest than a checking account.
Many people are unfamiliar with money market accounts (money market deposit accounts). Like a savings account, money market accounts generally yield much more than a checking account; however, unlike a savings account they also permit you to write a limited number of checks. They also allow bank to bank transfers. In order to have more of my money in money market accounts yet be able to write all the checks I need, I have opened up a number of different money market accounts and spread my money amongst them. I even have multiple accounts at the same bank. This allows me to earn much more than I could in a checking account yet at the same time be able to make the bank transfers and write the checks that I need to.
Checking accounts, savings accounts, and money market accounts are all cash equivalents that are highly liquid. If FDIC insured, they are also considered to be risk free up to certain limits. They are commonly used for emergency funds and to pay for living expenses. Although they aren’t likely to yield as much as many riskier investments over the long run, a good bank will at least pay you something for the use of your money.