Here’s how much money to keep in savings and investment accounts

I recently received a great question from one of my students: 

Hi Mabel!
I have a question: how much (%) should you have in your checking vs savings vs investment account? What do you recommend? Thank you!

For anyone else out there who might be wondering the same thing, here’s how I answered it:

Hi, Gabriela! That is a great question. Here is how I would personally approach it:

Checking account: 

Only keep the money you need to pay your monthly bills. Also, any “extra” spending money for personal care, entertainment, or anything else you need “immediate access” to.

Savings: 

In the savings account, send all the money you won’t need anytime soon, but you want to have access to it when and if required. 

For example, your emergency fund money should be in your savings. 

Also, let’s say you are saving for something specific. A particular item, asset, or experience you want to buy within the next 1-2 years – that money should also be accumulating in your savings account.

And by the way – I would not recommend leaving your savings at a traditional brick and mortar bank. For example, Chase Bank, Citibank, Wells Fargo, Bank of America, etc., pay almost no interest. 

Instead, I would keep my money in an online savings account. I personally like CIT bank (the savings builder account pays 0.40% APR). and Marcus by Goldman Sachs (high yield savings account pays 0.50%). Check out this blog post where I talked more about this topic.

Investment account: 

Send money to your investment account that you will not need within the next 3-5 years, but you want to see it grow and compound for bigger goals.

If you want me to suggest how much to start within your investment account, I would say $500 is a good starting point. 

Then, I highly recommend setting up automatic transfers from your checking and into your investment account at an interval that feels good to you. For example, it can be $50 every week or $100 a month. You’ll start accumulating money in that account and always have cash available when you want to buy a new stock or fund or when market opportunities present themselves.

Let me know if this helps!

Mabel

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