I've noticed in some TMF boards that people talk about having fairly large amounts of money (more than one would need for typical monthly expenses) in checking accounts. Is this typical? It seems rather odd, unless one is waiting for a big check to clear, to park money in accounts with very low or no interest.Or are people calling brokerage accounts with checkwriting "checking accounts"?Our typical monthly routine is to have pay direct-deposited into the checking account, and the savings moved monthly into the savings account, which is where the e-fund lives. (We also have a separate "tax withholding" savings account for taxes on DW's self-employment income.) Our CU pays about 2.8% interest on savings, and 0.5% interest on checking, with no fees for anything if we have $5K total in our savings accounts.Longer-term savings (above the e-fund amount) goes to investment accounts every six weeks or so. I know there are better ways to maximize interest (ie, having an Emigrant Bank savings account), but our CU is convenient and nearby.Why would someone routinely carry a big balance in a checking account?--Foobarista
Why would someone routinely carry a big balance in a checking account?Because they're lazy, I suppose. I transfer 30% of my paychecks directly into savings but leave the rest until I decide what I'm going to do with it. Right now I maintain two separate accounts in my savings account, one for deposits toward taxes and the other a carryover that I'm keeping for a December vacation. It's too much work to set up another account for excess money.I should probably transfer money into my ING account but I think the extra 1% or 2% I'd earn isn't worth the hassle right now, especially if I end up transfering it back out. I realize I'm probably losing $40 or $50 in interest per month by doing this, but it's just not enough money to motivate me. I'm pretty lazy. And that's about as stupid as one can get, I suppose.elizabeth
I agree. I keep my checking account as low as possible. My goal is to have less than $20 when my next paycheck is deposited.Twice a month I figure exactly what will be coming out of the next paycheck. If I need more to cover it I transfer it in from my MM and if I have more than I need I transfer it out to my MM.Of course I have a smaller checking account that I keep spending money in. I only use the debit card for that account and rarely write checks off the main account (if I need to I transfer back in to cover it)So far my system works great for me. When the MM gets up over $1k I transfer the excess to ING.
I agree. I keep my checking account as low as possible.That's a problem for me because I have one of those interest-bearing checking accounts where I get free checking, free checks, free stop payment requests, and I don't know what else for maintaining a balance of $1,000 or $2,000; I'm not even sure which. If I were to write my account down to $20, I'd pay service fees. And I don't balance my account until I get around to entering the figures in Quicken, which involves booting up my Virtual PC (did I mention I'm lazy?), so that's accomplished every 3 weeks or so.It's just that the interest I receive per month is less than what my savings account pays, and it's definitely a point or so less than my ING.elizabeth
Why would someone routinely carry a big balance in a checking account?In some cases, they are getting as much interest as they would be on a CD and interest rates have been rising so better to have it in checking.Waiting for an investment opportunity.Waiting for a big bill.Planning for a large purchase.And in my mother's case, because she wants to.rad
Well, in our case I don't very often let our balance qo below $1000, and we have an interest-bearing checking account. Twenty years ago (or even ten) that would have seemed like alot of money but now it's just a cushion. We pay our credit card bills in full every month and they can vary quite a bit. Last month I had an unplanned vet bill for $700. Next month's bill will show a $1500 charge for the Lasik surgery I had yesterday. Who knows what May's big expense will be? Interest rates are so low everywhere that the amount I would earn on that $1K is not worth thinking about...
>>>Why would someone routinely carry a big balance in a checking account?Laziness, service, investment return and safety.I deposited a low six-figure bonus check yesterday at BofA(BAC). They'd sent me an offer that if I added $2000 to my savings (and left it there for 6 months) I'd get $30 cash - not a bad deal - 3% plus whatever they're paying - probably another 1%. So, anyway, I needed the teller's help to divide up the check between checking and savings. She routinely pulled up my current accounts, where our checking balance happened to be about 40K, and she's like, "Do you always carry these balances?" "Yeah, pretty much." "Well, we do have investment counselors and CD's.""I know, I open my mail - they've made their existence abundantly clear."So, why???1) Laziness - I suppose I could buy short term CD's, but it seems like an awful lot of effort to get another couple percentage points on 40K - we're talking not much money in the big scheme of things. 2) Service - Our account at BofA requires us to keep some kind of a daily average minimum combined balance. It's been years since we opened the account, I have no idea what the amount is, but it seems that 40K meets the minimum. In addition, they're always nice to me after they pull up the balance.3) Investment return - Probably silly, but I have a fair amount of BofA stock, I like the company, they pay a good dividend, and I figure that if they make a few bucks from me, they'll eventually return some of it.4) Security - I like having the money I might need someday to be FDIC insured. My Dad, who has a lot more than I do, thinks that's silly, but, I sleep easier knowing that in the event of a collapse of the financial system, the government stands behind a couple hundred thousand of my deposits. I've got a lot more cash waiting to be invested in my Schwab money-market account, (once I think we're back in a bull market) but that's not government insured. I've got 95K in ING, but I'm emotionally reluctant to break 100K in ING. I suppose I could open an Emigrant account (been thinking about it) but their form looks awfully long, and their reviews have been mixed.martybl
But ING is FDIC insured up to $100,000 per account - so that's no different than having it FDIC insured at BOA.$50 on a $40000 investment may not seem like that much, but it's still free money and ING is convenient enough for free money, IMO. Besides, If you deposit $40,000 in ING, you will earn $1319 in one year and in 5 years you'll have earned $6580. All while you sleep and your money works for you. Not bad.-Noodle
But ING is FDIC insured up to $100,000 per account - so that's no different than having it FDIC insured at BOA.I've GOT 95,000+ in ING already - adding much to that would require giving up FDIC insurance on the amount over 100K.martybl
I understand that, which is why I stated "per account". IOW, I would simply open a new account with ING and still be covered. Sorry if I didn't make that clear.-Noodle
I would simply open a new account with ING and still be covered.Ohhh - new wrinkle - I didn't know that. I can open multiple accounts with ING, and each and every one is insured to 100K??? I thought it was per customer - if I can do that, I'll open another one tonight. How do I do that from ING's website screen?Thanks,martybl
Oops, it appears I am only partially correct. It is insured up to $100,000 per depositer, but joint and individual accounts are insured seperately.So, if you have an INDIVIDUAL account in your name, then you can open a 2nd JOINT account (presumably with a spouse) and have both insured. That's how you can get insured to $200,000. If you only want an individual account, it won't work. Don't know if that works for you or not.Hope I didn't get your hopes up for nothing. I tend to keep the majority of my money in the stock market because I am young enough to absorb the risk (and don't plan on needing the money for a long time).-Noodle
I've GOT 95,000+ in ING already - adding much to that would require giving up FDIC insurance on the amount over 100K....which is why perhaps you should open an Emigrant Direct account. I did, and though I haven't been thrilled with the Emigrant Direct account-opening process (it took awhile), ultimately I think it will be worth it. If you take the time to set it up this once, it will more than pay off for you in the future. --AF
Why would someone routinely carry a big balance in a checking account?I suppose it depends on what you consider a big balance. I keep a $3000 minimum in our personal account and in DH's business account that I never add into the balance. That is the minimum that the credit union requires so that checking balances can earn interest which is something I prefer to do even if it's a small amount because I pay all the bills out of the checking account, so I'd like interest on that money all the time.Another reason that I don't like to keep my checking account without a cushion is to avoid any penalties caused by errors whether that's my math errors, which I do make from time to time, or a bank error that can easily be fixed, but it does still need to be fixed. I'd rather deal only with fixing an error than also dealing with bouncing checks or paying fees for being overdrawn, so I think of this cushion as my insurance policy against those sorts of things.Also, DH never writes down anything in the register, and has no concept of needing to ensure there is enough money in the account to cover whatever he is writing. We've solved the first problem by using duplicate checks so that I can bring the register up-to-date, and since he really doesn't write a lot of checks because I pay all the bills, it's not too bad to manage. But as this is his business account, bouncing checks becomes a huge deal, so I leave that cushion in there, and never reflect it in the balance.I also consider the checking account cushions, which total $6k since we currently have 2 checking accounts, to be a part of our emergency fund. It is cash that is readily available and doesn't require a trip to the bank or even a transfer to access. If necessary, I could simply write a check that goes 'negative' on the register because that money isn't included, but is really a covered check since I know the money is in the account. This also means that I sort of forget about that money, so there's no fear that I won't have an efund when I need it.That said, I do keep the majority of our efund in the money market, but similar to people who tier their efund either in CD's or some other way, this is a way for me to have a tiered efund.It works for us, and is something I've always done. I don't like worrying about whether I just bounced a check because I did the math wrong, so this takes care of that problem as well, and I'm not worried about how close I'm playing it on the checking account. But then, I've been known to have ridiculous slush funds.It's whatever works for you, and this works for us.
I keep a fair amount in my checking account, mostly because I hate waiting for a paycheck to write my checks. I hate that living from paycheck to paycheck feeling. I pay my bills as soon as I get them and I always know that I can cover them.
I am impressed that folks can track the timing of expenses so closely. I could, but I do not spend the time. So I keep a few thousand in my account. If it drops below $1000, I get nervous.Now, as someone else mentioned, several years ago I might have said "if it drops below $100, I get nervous". I transfer money to ING when it it enough to matter, say 1000+. I do not want to transfer to ING this week, and back next week.
marty,I sleep easier knowing that in the event of a collapse of the financial system, the government stands behind a couple hundred thousand of my deposits.Not to be alarmist, but if there was a collapse of the financial SYSTEM, FDIC ain't gonna help any of us. I think of FDIC as helpful if a bank (or a few bank institutions collapse) collapses, not a SYSTEM. -b-
But ING is FDIC insured up to $100,000 per account - so that's no different than having it FDIC insured at BOA.I've GOT 95,000+ in ING already - adding much to that would require giving up FDIC insurance on the amount over 100K.I'm looking forward to the day when I can say that adding $5,000 to an account isn't "adding much". I'm a new LBYMer and just started snowballing my CC balances so hopefully I'll get there one day
At the end of each month, I take the amount in the checking account and the amount owed on CCs and the amount I need to adjust in the efund buckets for that month and keep $300 in the account for cushion. All extra money goes into ING (and on bad months, the extra amount I need to cover the CCs goes from ING back into Checking).I try and only do this transfer once a month, but occassionally i find myself doing it twice.-Noodle (things are more complicated because of the ING buckets and the DH's business expenses that he incurrs one month, but maybe doesn't get reimbursed for until the following month)
I say that if you're laughing all the way to the bank, the joke is on YOU!I avoid keeping more than a few hundred dollars in the bank. I direct deposit my ENTIRE paycheck into my Vanguard Treasury money market fund. I can make ACH transfers into checking and write checks as many checks as I want against the money market fund provided that the minimum check size is $250. So I can pay smaller bills from checking and larger bills from the money market fund. I consider this to be the ultimate "pay yourself first" method, because it takes action on my part to move money OUT of my money market fund.
I consider this to be the ultimate "pay yourself first" method, because it takes action on my part to move money OUT of my money market fund. I think it's great that you pay yourself first. I don't have the courage to really do that. But, what is your MM paying? Seems like they don't pay all that much - may a little more than a local bank....I agree with you that keeping the majority of the money in the bank is not the best idea, financially.-Noodle
If I were to write my account down to $20, I'd pay service fees.That's why I use NetBank. I have no fees caused by low balances and have total freedom to move my money where I want it.And it is interest bear, free checking, free checks (one box, but with free on-line bill pay I rarely write checks so one book lasts me months) and free stop payment too.May not pay as much in interest, but that is why I don't keep excess money there.
Actually, much of our after-tax money is in a private partnership that funds commercial bridge loans and such. It pays a fairly high rate of interest, but isn't terribly liquid so it isn't a good place for an efund. Some other money is in I-bonds, which have a good interest rate and are exempt from state income taxes. Our pre-tax money is in 401Ks, Roths, and IRAs and those are in various of stock funds or stocks.Our efund and tax withholding money are in a couple of savings account earning about 2.8% interest at our credit union. I just found out that the interest rate will go over 3% in May.--Foobarista
I'm looking forward to the day when I can say that adding $5,000 to an account isn't "adding much". I'm a new LBYMer and just started snowballing my CC balances so hopefully I'll get there one day It'll happen, even if at first it seems like it'll take forever. The great part is that it gets easier as you go along, as compound interest starts working for you rather than against you.I've related my story on another board awhile back, but to make a long story short, when I started my sojourn I was ~16K in the hole, at about 15% interest. A year later, I was under 13K, but gosh darn it, interest rates had gone up.About two years later I'd hit positive net worth (retirement savings greater than my by now lower CC debts), and the first low interest rate offers started coming in and I took advantage of them. And so it went. Last year my total net worth increased by more than the 16K I was initially in the hole. And I'm still a long way from "95K in an ING account", but as I look back at my financial history, I'm definitely headed that way.Just keep on keepin' on. Set goals from modest first ones to great big ones, and keep track of your efforts. That was a big help to me as I started. It didn't feel like I was making any headway against my debts, but when I realized my total was under 15K (after being over 16 several months earlier), it sunk in "hey, I am getting somewhere".A trickle becomes a rivulet becomes a creek becomes a stream becomes a small tributary becomes a mighty river becomes an ocean.
Why would someone routinely carry a big balance in a checking account?I have a Ford Money Market checking account that pays a higher interest rate than ING and has no fees. I can also do whatever balance transfers I want and I can also do free bill pay.
I think it's great that you pay yourself first. I don't have the courage to really do that.It doesn't take any courage for me to direct deposit my entire paycheck in my Vanguard money market fund. I can electronically transfer money to my checking account, and I can write as many >=$250 checks as I want. So my money is not tied up, but my paycheck earns me a competitive interest rate from the get go. If I direct deposited money into my checking account instead, I would have to DO something to get it into the money market fund, and the money wouldn't earn interest until it's actually in, which could take a day or two.But, what is your MM paying? Seems like they don't pay all that much - may a little more than a local bank....Around 2.5% in the all-Treasury-Bill fund, but most banks pay less. As interest rates rise, the gap between banks and money market funds will only widen. Also remember that banks can fail while the money market fund industry has a much better safety record than the banking industry. Using an all-Treasury-Bill money market fund from Vanguard increases the safety further by several orders of magnitude.
Elizabeth:First of all, your posts make it very clear that you are NOT "stupid"! However, if you are, then so are we. We routinely keep maybe $1,000 or so in checking, for the same reasons you gave -- we're lazy! However, since banks pay so little interest on savings, anyway, why fret over it? When we were working, raising kids, and working to "make it", we'd never have done this. But now, retired, just the two of us, why not? I rarely balance my account "to the penny", either. Sure, I check often for odd withdrawals (because I use my debit card quite a bit for local purchases, instead of writing a check or using VISA), and I DO routinely check my statements and examine by phone to make sure things are about where they should be, but why be in a state of froth over "balancing" all the time? We have other things to do.Vermonter
Interest rates are so low everywhere that the amount I would earn on that $1K is not worth thinking about...Bingo!Vermonter
I frequently have a ton of money sitting in my checking account.I'm one of those "weird" people who can never seem to spend as much as I make.~25% gets sent to the government to be pissed away (including social insecurity and mediscam taxes).I take out 20% for my 401k.I have another $1,000 automatically sent to mutual funds.Some goes into health insurance.The rest goes into my checking account, and it tends to pile up there.If I don't pay attention, it will quickly hit $10k or more.My wife says this is a "problem" a lot of people wish they had.jbBTW, I don't make a huge salary, I just don't spend much.
Never have much in my chequing account because as soon as paycheque is deposited, I transfer X$ in joint account for joint expenses, X$ in savings/vacation, X$ in savings/furniture, X$ in savings... Retirement savings and investment savings get deducted at source by employer so I never miss it.Basically, one hour after my cheque has been deposited and I've paid all my bills/transferred to various savings, I am left with about $20 until next pay anyway.
I've noticed in some TMF boards that people talk about having fairly large amounts of money (more than one would need for typical monthly expenses) in checking accounts. Is this typical?R, who I used to work with (now retired) has a mother-in-law that typically keeps several tens of thousands of dollars in her checking account. R tried several times to convince her to move some of that money to a savings account to at least earn a little interest, but to no avail. On the other hand, she could walk into a car dealer, write a check for a car, and know there was enough money to cover it.R's speculation was that the large amount was a "safety blanket", even though R didn't see the need to transfer from savings back to checking that big of a deal.My situation is different. I get paid on the last business day of the month. I aim to have approximately $1,000 in my checking account the day before the payroll direct deposit hits my checking account. My reasons are:1. Since I work for IT, I often hear stories of glitches with the payroll runs, with the direct deposit "tape" (actually a file that is FTPed to the bank), sometimes computer hardware problems. This has been enough to convince me to try to have enough in my checking account to cover the bills that would be direct debited from my checking account for the first couple of weeks or so into the month, even if the payroll direct deposit were to be delayed. So far the payroll direct deposit has always showed up on the day it was suppose to, but the $1,000 buffer keeps me from stressing about it.2. Until I qualified based on age for a no-minimum free checking account, I had to keep an average daily balance of at least $500 to avoid fees.3. That $1,000 often served as a "tier 0" for my emergency fund for smaller expenses like replacing a dish washer, water heater, VCR, all the water hoses on my car, tires, medical deductibles, replace motherboard and CPU in my computer, etc., fortunately seldom two in the same month. ("Tier 1" is the money market account at my credit union, "Tier 3" are savings bonds.) April turned out to be a little more expensive than normal: auto insurance (expected), buy a replacement VCR, replace the VCR rewinder, the motherboard and CPU, and certain items my doctor recommended, but I didn't need to dip into my savings.4. Sometimes I do make math error or transcription errors in my check register, so having a fair amount of safety margin helps avoid NSF fees.
My wife and I keep one month's worth of expenses in our checking account, so the overall balance fluctuates between one and two month's expenses, depending on whether we just got paid or are just about to be.We do this because we had a situation arise where we needed some emergency money with no notice, but our investment accounts (Vanguard, Fidelity) take a few business days to get the money into your account directly. After seeing that some emergencies could be faster than our access to the money, it became a priority to make some of it really instantly available.We keep it down to just one month of our e-money (which is 6 months worth) so that we can get most of the interest.-SalientPS - Good for avoiding potential fees for overdrafts and things due to mistakes. It wouldn't happen for normal expenses, but mess up when you're paying your mortgage payment online and end up paying two month's worth at once, and you'll be glad it was there. =)
This is such a great thread. I fall into the group of people that get nervous when my checking account balance is low ($500 or so). But I'm also the type that is great at convincing myself that I have no money, which makes me very careful about everyday spending. Because I fool (or Fool) myself into this way of thinking, I make spontaneous purchases for things like new music or jeans without a care. So last year I found myself with a huge balance and seemingly no explanation where it all came from. I transferred a large amount to ING, set up monthly Ameritrade withdrawals, and took a vacation. Now I'm back to that $500 area of extra money after monthly expenses, and feeling better about it.-stasia
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