Have $5,000 in Your Checking Account? Here Are 3 Better Places to Keep Your Cash

A checking account is the best place to keep the cash you need for bills and everyday spending. The recommendations vary on how much to keep in a checking account, but a good guideline is to keep at least one month's expenses stashed away.

But suppose you consistently have $5,000 parked in your checking account and that's more than enough to pay your bills for one or two months. Let's explore some better places to keep that extra money.

Three better options for extra cash

Checking accounts may be convenient, but here's the problem: The average interest-bearing checking account pays just 0.08% APY. That means if you deposited $5,000 in a checking account for a year and never touched the balance, you'd have just $5,004 after 12 months. And that's assuming your checking account pays interest. (Many do not.)

These three options will help grow your money faster.

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

1. High-yield savings account

The top high-yield savings accounts are paying APYs in the 4% range. It's possible that those rates will drop some if the Federal Reserve continues to move forward with rate cuts in the coming months. Regardless of where rates are headed, you'll almost certainly earn more in a high-yield savings account than you'd get from a checking account.

Need a new home for your savings? Check out our list of the best high-yield savings accounts here.

2. 1-year CD

If you have a healthy emergency fund but you're sitting on savings you might need to tap in the next couple of years, consider locking in a 1-year CD. The best 1-year CD rates are also in the 4% range. Unlike with a high-yield savings account, you're locking in an APY until the CD matures.

The drawback is that the money is also less liquid since you'll usually pay an early withdrawal penalty if you need your money before the maturity date -- which is why a CD often isn't a good place for an emergency fund.

3. Roth IRA

If you don't need your money for several years, setting up a Roth IRA and investing the money in the stock market is a smart way to go. You fund the account with money that's been taxed, but if you follow all the rules, your withdrawals will be 100% tax free in retirement. The best Roth IRA brokers offer $0 commissions, no account fees, and low minimum opening deposits.

If you don't want to choose your own stocks, consider an S&P 500 ETF. You'll automatically invest in 500 of the largest, most profitable publicly traded companies in the U.S. Though returns can vary significantly from year to year, the S&P 500's average annual returns are about 10% over the long term.

Note that Roth IRAs have income limits and contribution limits. If putting your extra funds in a Roth IRA isn't an option, consider other types of tax-advantaged retirement accounts or a regular brokerage account.

Another option for your extra cash

If you have extra money in your checking account and you're carrying credit card debt, consider putting the excess toward paying off the balance. Any interest you're earning from a checking account will pale in comparison to the amount you're forking over in credit card interest each month. To speed up the process of getting out of debt, consider a top balance transfer card so that you can maximize your interest savings.

Keeping a decent amount of cash in your checking account provides a safety cushion and makes it easy to access your money when you need it. But excess money in a checking account isn't earning much (if anything), so you'll want to find a way to put that money to work for you.