A better idea than letting a large amount of money sit in a savings account without being used is to transfer your money to a money market account or lock away the money for a set amount of time in a Certificate of Deposit (CD). A better rate of return will then be received.
A money market account will typically require a minimum balance of $500 or $1000 and will allow you similar flexibility as a savings account as long as the minimum balance is maintained. If you do not meet the minimum balance any longer, then transfer the money back to the savings account and close the money market account until sufficient funds exist to reactivate the money market account.
A CD will earn even more interest by locking away money for a longer time period; the longer the duration, the higher the interest rate. Keep in mind the interest rates change often, but they won't change when your funds are locked into a specific CD. Some months the rates for a 2-year CD can be less than the rates for a one-year CD while other months they will be higher. Be sure not to put all your money into one CD. Instead, divide the amount among several CD’s meeting the minimum balance requirement. Even consider opening a different CD each month. The reason is because if circumstances occur in which money is needed right away. Instead of breaking up a large CD for a smaller amount, you will only need to cash in a smaller CD leaving the remaining balances at the higher rate of earnings and minimizing penalties for early withdrawal. Spacing the locking period among several CDs over a period of time is referred to as a technique called "laddering".
Another idea is to take advantage of the interest offered for bank accounts. Typically your checking account does not offer any interest or it offers a lower interest rate than your savings accounts. Instead of letting the money sit in the low/no interest checking account, transfer all your money to the savings account to earn interest until the money is needed for a check to be cleared, at which time transfer the money back to the checking account. Also, don't pay your bills early, wait until the due date. When the bills are due, write the check, mail the check, wait a day or two, then transfer the balance of the check from your savings account so the amount on the check will clear. The reason for waiting to transfer the money from savings is to increase the amount of interest earned. The interest is typically based on the average amount in the account during the month, not the balance at the end of the month. This idea will provide you some extra money, but it will also require you to pay attention to your account more carefully.
The reason savings accounts have higher interest rates than checking accounts is because of the government's Regulation D (a.k.a.: Reg D) which regulates the use of a savings account. Regulation D defines the types and number of transactions that can be performed on savings accounts requiring you to be careful not to violate the regulations. The number of transactions is limited to six electronic or automated transactions involving the following in a calendar month:
BEWARE: Exceeding the six transactions can result in a bounced check even though funds exist in the account. Also, don't try to time the clearing of checks to the point of not having enough money in the checking account resulting in a bounced check. An option to minimize the number of transactions is to mail checks weekly so that funds will only need to be transferred once a week instead of several times a week.
Consider becoming a member of a credit union instead of a bank. You will probably discover lower/no fees for the same services. There is no need to pay the bank more fees for the privilege of storing your money. Banks invest your money keeping the profits.
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