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How to Make the Most of Your Cash (And Your Expenses)

June 15, 2020

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What we’ll cover:

Don’t keep more in your checking than you need to; generally, 4 – 8 weeks of monthly expenses
If you’re not optimizing your savings, you could have cash drag and it could cost you over time
Consider using different savings accounts for different goals and purposes
You could earn money on everyday expenses with cards that give you points, cash or miles

While a good percentage of us live close to a cashless existence, we may have piles of cash in accounts and banks online or locally (anyone remember paper savings bonds?).

If this is you, that’s fantastic! But we have to ask: Is your money essentially gathering dust, or is it doing stuff, like earning as much interest as possible? And, are your expenses pulling their weight, cash-back or points wise?

If not, or you’re just curious about how to up your game, we’ve got three places to start:

1. Ask yourself: Do you have too much money in your checking account?

A robust account balance is rarely a bad thing, but if you’ve got more cash than you need in a checking account that’s earning little to no interest, your savings and other accounts could be underpowered. In short: You could be missing out on the opportunity to bulk up your finances.

What qualifies as “too much” cash? The answer depends on a word that’s got a bad rep: budget. Stick with us here because having a budget doesn’t have to mean cutting back. Particularly in this case, having a budget could be key to earning more interest because it could help you identify if you have too much cash hanging around. (If you’ve been meaning to get a budget or give yours a tune up, we’ve got some ideas for how to get started here.)

So back to the question – how much money should you keep in your checking account? You should generally have enough to cover 4 to 8 weeks of known monthly expenses, plus a little extra that will cover those expenses that tend to crop up.

Keep in mind: If your checking account has a minimum balance requirement, add it to what you’ve already calculated above.

2. Ask yourself: Are you saving in the right types of accounts?

It’s really easy to underestimate what’s going on with this question because when we’re talking about saving, we mean doing more than just socking away money as opposed to spending it.

What we’re really asking is this: are you using as many different types of savings mechanisms as you can so your money can make as much as it can?

If you’re not – and no judgment here – your money is under performing. In parent-speak, it’s not living up to its potential, and, quite frankly, could be doing more.

Example: How not using our Online Savings Account could mean your money is missing out.

Say you have cash languishing in a traditional savings account – sure it may be earning a little bit of interest, but maybe not as much as it could if it were in a high-yield savings account. With our high yield savings calculator, for example, you can compare how different APYs could impact your savings.

Rates of the selected banks reflect New York savings rates for similar products at the select banks with a minimum balance of $2,500. Rates may vary by state and do not account for bonus, special or promotional APYs. National Average is based on the APY average for high yield savings accounts with a minimum balance of at least $2,500 offered by the top 50 US banks (ranked by total deposits). Rates of selected banks and the National Average as reported by Informa Financial Intelligence, www.informars.com. Informa has obtained the data from the various financial institutions that its tracks and its accuracy cannot be guaranteed. This calculator does not include all savings accounts available in the marketplace.

Our rate as of April 24, 2024.
Comparison banks’ rates as of April 23, 2024.
National Average rate effective as of April 23, 2024.

Annual Percentage Yield (APY) as of April 24, 2024. APY may change at any time before or after account is opened. Maximum balance limits apply. A maximum of six (6) withdrawals or transfer per monthly statement period are allowed.

This calculator is for illustrative purposes only and may not apply to your individual circumstances. Calculated values assume that principal and interest remain on deposit and are rounded to the nearest dollar. All APYS are subject to change.

Rates of the selected banks reflect New York savings rates for similar products at the select banks with a minimum balance of $2,500. Rates may vary by state and do not account for bonus, special or promotional APYs. National Average is based on the APY average for high yield savings accounts with a minimum balance of at least $2,500 offered by the top 50 US banks (ranked by total deposits). Rates of selected banks and the National Average as reported by Informa Financial Intelligence, www.informars.com. Informa has obtained the data from the various financial institutions that its tracks and its accuracy cannot be guaranteed. This calculator does not include all savings accounts available in the marketplace.

Our rate as of April 24, 2024.
Comparison banks’ rates as of April 23, 2024.
National Average rate effective as of April 23, 2024.

We used our Online Savings Account as an example, because of course we’re fans, and because it’s a great segue into information that may take you by surprise: Our Online Savings Account could be just one type of account you may want to consider putting your excess cash into, as opposed to being the only means of getting more from your money.

Your goals will help you determine what type of accounts you may want to consider.

Now that you know how much money shouldn’t be sitting in your checking account, the next step is exploring where you might want to put it. We’ve got some options below, as well as ideas of how different types of accounts may line up with different goals and priorities.

For when you need money on hand and for short-term goals

For emergency funds, the classic calculation is to have enough money to cover essential expenses for at least three to six months. Think things like food, rent/mortgage payments, utilities and health care. Since the goal here is to drop funds in an account you’ll leave alone so it can earn interest, some features to look for include a high APY and easy access. Being an emergency fund, you want an account where you can easily access your funds as soon as you need the money. High-yield savings accounts are a great option here because they offer easy access, and also typically give you a better interest rate than you would get with a traditional savings account. So you can park your money and have it grow at the same time.

You may also consider a No-Penalty CD. You can’t add money to it on a regular basis (once the funding period ends, what’s in there is in there), but you can break it open and get your money, usually beginning 7 days after funding. Although you can’t add to the balance, it could earn a higher APY than a savings account.

For longish-term goals when you can let money rest and earn

For specific savings goals, like a down-payment on a house or an unforgettable vacation, the amount you want in the account is the cost of your expected expense. If you’ve already got the money on hand, know how long you can let it sit, and want it to earn interest at a reliable clip, something like a Certificate of Deposit (we’ve got a CD guide) with a fixed interest rate could be worth considering.

Some additional options worth exploring include Money Market Accounts, which are kind of like a checking-savings hybrid, and Treasury Bills, which act a lot like CDs in the sense that you are committing to putting money aside for a set amount of time.

Then there are accounts that include tax benefits. Think 529 plans for college and college debt, and Health Savings Accounts for health care expenses, as some examples. These tend not to be free-for-alls. There can be contribution limits, which means if you’ve met these limits and still have money left to put elsewhere, you could direct your extra cash to investments.

And for really long-term goals, like retirement

This is where investing in things like stocks, bonds or ETFs could come in and may (and we emphasize may because investing comes with risks) help you get a return you wouldn’t get through a savings account.

This idea of return is similar to what we discussed when we talked about savings accounts earlier. In the investments world, this sort of underperformance is sometimes called cash drag.

If you’re comfortable with how much you’re keeping in your checking account and how your money is working across different types of savings accounts, it could be a good time to consider investing.

It's a field with a lot of options and if you’ve got a 401(k), surprise!, you are already investing. If you know how 401(k) plans work, you also have a starting sense of how investing could play a role in supporting long-term financial plans. We’ve got a quick rundown of how saving and investing can work together in this savings vs. investing article.

Reaching your goal starts with saving for it.

See savings options from Marcus

3. Ask yourself: Are you earning money from everyday expenses?

Before we jump in, we’re not saying you should take on debt to score things like an extra roomy seat on your next flight.

We are saying, however, that if you’re already using a debit or credit card for regular purchases and aren’t receiving rewards like cash back, miles or points, you could be missing out.

As with every type of card, you’re going to want to wade into the details and see if the effort to earn and redeem rewards is worth it, as well as what type of fees you could end up paying. It really comes down to value. If, for example, you’re a regular traveler and the value of the rewards you earn with your usual purchases outpaces what you’re paying for the card, you’re on the right track. But if you’re just breaking even, you may want to rethink the type of rewards you’re earning, or even scrap the rewards card altogether.

This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.