If you have more than $1,000 in your checking account, that's a good problem to have. It means you're living within your means and building financial stability. But here's the thing: that money could be doing a lot more for you than it is now.
Most checking accounts don't pay much interest, which means that while your money is sitting there, it is losing value because of inflation. If you have a good amount of money in your checking account, it's time to put it to use with these eight smart moves.
1. First, set up your emergency fund.
Make sure you have a good emergency fund before you do anything else with your money. Experts say that you should keep three to six months' worth of living expenses in a high-yield savings account in case of unexpected events like losing your job, having a medical emergency, or having to make big repairs.
Add up your monthly necessary costs (rent, groceries, utilities, and minimum debt payments) and then multiply that number by three to six. If you don't have enough money in your emergency fund, make sure to move any extra money from your checking account there first. Instead of the 0.01% APY your checking account probably gives you, look for high-yield savings accounts that offer 4–5% APY.
2. Pay Off Debt with High Interest Rates
Paying off credit card debt, personal loans, or other high-interest debts should be your next priority if you have them. One of the best ways to make money is to pay off your debt, since credit card interest rates can be more than 20% a year.
Make a list of all your debts by interest rate and pay off the one with the highest interest rate first, while making the least amount of payments on the others. If you can only pay an extra $200 to $500 from your checking account toward your debt, you'll save a lot of money on interest.
3. Get the most out of your employer's 401(k) match
If your employer offers a 401(k) match and you're not taking full advantage of it, you're missing out on free money. This is basically a return of 100% on your investment up to the match amount.
Check how much you're currently contributing and raise it to get the full employer match. If you need to change your budget to allow for higher contributions, you can use some of the extra money in your checking account to cover the temporary cash flow gap while your paycheck changes.
4. Get a high-yield savings account
Put some of the extra money in your checking account into a high-yield savings account. Rates at online banks and credit unions are often 50 to 100 times higher than those at regular checking accounts.
Keep enough money in your checking account to cover your monthly bills and a little extra, but move the rest to earn real interest. A lot of high-yield savings accounts right now offer 4–5% APY, which means that instead of getting pennies, $1,000 could earn $40–50 a year.
5. Begin putting money into index funds
After you've taken care of your emergency fund and high-interest debt, think about putting any extra money you have into low-cost index funds. These funds give you instant diversification and have historically returned 7–10% per year over the long term.
In many brokerage accounts, you can start with just $100. If you want to get a simple, diversified look at the stock market's growth potential, think about broad market index funds that follow the S&P 500 or the total stock market.
6. Put money into a Roth IRA
If you can, putting money into a Roth IRA is a great way to save for retirement without paying taxes. You can put in up to $6,500 a year in 2024 ($7,500 if you're 50 or older).
You put money into a Roth IRA after taxes, but your money grows tax-free, and you can take it out tax-free when you retire. You can even take out your contributions (not your earnings) without paying a penalty before you reach retirement age for some things, like buying your first home.
7. Invest in yourself by learning new things or improving your skills.
Investing in your ability to make money is sometimes the best thing to do. You might want to use some of your extra cash to pay for classes, certifications, or training that could help you get a promotion or move up in your career.
Investing in skills that will help you make more money, like getting a professional certification, taking an online course, or going to a conference in your field, often pays off the most over time.
8. Think about Treasury Bills or CDs for safety.
If you want to make more money than a savings account while still being safe and having access to your money, think about Treasury bills (T-bills) or certificates of deposit (CDs). These options, which are backed by the government or the FDIC, usually have higher interest rates than savings accounts.
T-bills are very appealing because the U.S. government backs them, and you can buy them for as little as four weeks. When you buy a CD, you know how much money you'll get back, but you have to keep it locked up for a set amount of time.
The Bottom Line
Having more money in your checking account is a sign that your finances are getting better, but it's only the beginning. You can speed up your path to financial independence by moving this money into accounts with higher interest rates and investments and paying off debt.
Start with the basics, like an emergency fund and paying off high-interest debt. Then, over time, work on building wealth for the long term by investing and making retirement contributions. Instead of letting money sit in a checking account with low interest rates, the key is to do something with it.
Keep in mind that your finances are your own. You should choose the move that makes the most sense for you based on your own situation, how much risk you can handle, and what you want to achieve. If you need help making a full plan for your financial future, you might want to talk to a financial advisor.
