Do you have some extra cash sitting in a checking account? Back during the years of near-zero interest rates, that might've seemed like a decent place for your cash. (At least a checking account has FDIC insurance, right?) But now that banks are paying higher APYs on savings accounts and CDs, you have lots of better options.
You work hard for your money, and you deserve to have your money work harder for you. That extra cash should be earning you some interest, investment gains, tax benefits, or other perks!
Let's look at 10 better places to put your money than a checking account.
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1. Paying off debt
If you have $1,000 sitting in a checking account earning zero interest, but you have a balance on a credit card that's charging you 20% or higher interest, you're missing out on an opportunity. One of the first priorities for extra cash should be paying off high-interest debt.
Or if you have an auto loan that is charging you high interest (even some of the best auto loans are charging 7% APR or higher, as of March 2024), it might be worth using your checking account cash to make an extra car loan payment or two.
2. High-yield savings account
Some people might use a checking account as a place to hold their emergency savings. This might've made sense when banks were paying near-zero interest on savings accounts, but today's best high-yield savings accounts can give you a better deal.
Keep your savings in an account that pays you interest. If not, you could be missing out on hundreds of dollars a year (or more). As of March 6, 2024, the best savings accounts were offering 5.30% APY or higher. So if you put $10,000 of savings into one of the best accounts, you'd earn about $530 in a year.
3. 401(k) contributions
If you have extra cash in your checking account, this could be a sign you're not saving enough for retirement. Consider raising your 401(k) contributions from every paycheck, at least enough to get your full employer match.
And if you're a high earner in a higher tax bracket, you might want to max out your 401(k) with up to $23,000 for 2024 ($24,000 for people aged 50 and over). This is one of the easiest ways to get a tax break by reducing the taxable income on your tax return -- while boosting your long-term savings to invest for retirement.
4. Traditional IRA
Another option to save for retirement while getting a tax deduction is to open a traditional IRA account. Even if you already have a 401(k) or other employer plan, many people can also qualify to get a tax deduction on the money they put into a traditional IRA.
The IRS will let you put $7,000 ($8,000 for people age 50 and over) into your IRA for 2024 -- about $583 per month. This is a great way to get a tax break and save more for retirement.
5. Roth IRA
Here's another clever retirement planning strategy that a lot of Americans might not be taking advantage of: opening a Roth IRA. This is a special retirement savings account that gives you tax-free income in your golden years.
A Roth IRA does not give you a tax deduction in 2024, like a 401(k) or traditional IRA. Instead, your Roth IRA investments are allowed to grow tax free into retirement. You can put up to a total of $7,000 ($8,000 for people age 50 plus) into all IRAs (Roth and traditional IRAs combined) for 2024.
6. Brokerage account
If you're already maxing out your 401(k) or IRA, don't qualify for a Roth IRA, or if you want to use your money for a wider range of goals, you could put extra cash into a taxable brokerage account. The best brokerage accounts make it easy to buy stocks, bonds, index funds, ETFs, and other financial assets to help your money grow for the long term.
Keep in mind that investing can be risky. There is no guaranteed return in the stock market, and you could lose money if your investments lose value. But a brokerage account should be part of your plan if you want to build wealth.
7. Certificate of deposit (CD)
Looking for something a little more "safe" that still can earn you some yield? Check out certificates of deposit (CDs). This is a savings product where you commit your money for a certain "term" of time, and the bank or credit union guarantees you a fixed rate of interest on your savings.
Some of the best CDs as of March 6, 2024 were offering rates of 5.30% APY or higher. The best CD rates are often competitive with (or higher than) the best savings accounts -- but you have to leave your money in the CD for the length of the term, or else you'll owe a penalty.
8. Money market account
Many banks offer money market accounts (MMAs) as another option for people who want yield on their savings. Money market accounts have a lot in common with savings accounts, but some MMAs offer debit cards and check-writing capabilities.
One difference is that money market accounts often pay higher interest than savings accounts. That's because money market accounts are invested in the "money market" -- short-term, low-risk securities like government bonds and commercial paper. These investments enable your money market account to work harder for your money.
9. Health savings account (HSA)
If you have the right kind of health insurance plan, you can get an extra tax break from an HSA. The health savings account (HSA) is a great way to pay for out-of-pocket healthcare costs with tax-deductible dollars.
If you have a qualifying high-deductible health plan (HDHP) for 2024, you can put up to $4,150 for single coverage, or up to $8,300 for family coverage, into an HSA. Don't miss your chance for this tax break, especially if you're a high earner!
10. 529 college savings account
Are you trying to help your child or other loved ones save for college or pay for private school expenses? If so: put your extra checking account money into a 529 education savings plan. 529 accounts are the best way to save for college or other qualified education expenses -- including community college, K-12 school tuition, and some apprenticeships or vocational programs.
You don't get a federal tax deduction for the money you put into a 529, but some states offer state income tax deductions. And your money is allowed to grow tax free, like a Roth IRA or other tax-advantaged retirement accounts.
Bottom line
In a world where the best savings accounts and CDs are paying over 5.00% APY, and where saving for healthcare and retirement earns tax breaks, no one should leave their cash sitting in a checking account. Get a tax deduction for a traditional IRA contribution, invest in stocks with a brokerage account, or at least get a safe, high-yield savings account so your money grows. You have lots of options to make your money work harder in 2024.
