This weekend, my husband and I mapped out our cash flow for the rest of the year. I noticed that he wasn’t scheduling our usual monthly transfers to savings, but was instead letting the money pile up in the checking account. That started a debate about whether it was better to leave the money in the checking account for convenience, or better to transfer it to savings to earn a few bucks of interest. I’m sure you can guess which side of the argument I came down on!
He reasoned that we have quite a few big expenses coming up. For example, we’re buying a new coffee table, TV, and TV console later this year, we have our homeowners insurance, earthquake insurance, flood insurance, and auto insurance due between July and November, and then I’m buying a new car around the end of the year.
That brings our total planned spending to around $9000. However, we’re not spending it all in one month, it’s spread out into three large chunks.
Low Interest Rate
Our current interest rate is 1.29%, which is pretty darn low. Each $1000 earns $12.90 a year, or $1.07 a month. So, leaving $3000 in the account for three months earns us a whopping $9.56.
It’s true that leaving the money in checking (which earns no interest) is more convenient. We don’t have to schedule transfers to make sure the money is back in our account in time. It also doesn’t make sense to transfer money from checking to savings and then transfer it back two weeks later.
Convenience vs. Interest
If the interest rate were higher, the convenience factor would be less compelling. However, it’s not exactly inconvenient to make a few clicks and transfer money around. While I won’t transfer funds out of the checking account during the months we have to make big payments (because I’ll be transferring money in), I will transfer the funds out in the interim months. Even if we only earn $3 in interest, that’s $3 more than we had before and it’s certainly worth 60 seconds of my time.
When interest is this low, it doesn’t always make sense to transfer funds out of checking, but if you can map out your expenses, I think it’s worthwhile to move the money into savings if it can stay there more than a month. Most online accounts allow six transactions a month, so there’s really no reason not to use at least one of them!