Layering Your Bank Accounts

July 11th, 2022

Time for the classic banking approach to make a comeback?

For years, savings and checking accounts provided little interest income. However, interest rates are on the rise in our current inflationary times. What is also on the rise is the comeback of traditional banking products. Here is a review of how your bank accounts work together to provide you with the best security and value for your money.

The checking account: 30 days of funds

  • Primary Purpose: Checking accounts enable financial transactions. With checking accounts, you’re allowed numerous withdrawals and unlimited deposits. The tradeoff for having an account where cash is available at a moment’s notice is usually a much lower (or practically non-existent) interest rate. So store enough money here to pay immediate expenses.

    Action Item: Determine your 30-day cash needs and limit the available cash in your checking account to this amount. Consider looking for a checking account that allows an automatic sweep function of excess funds into a higher-interest savings account. Also, consider setting up a link to another account. Most banks allow this, so you do not have overdraft fees.

Basic savings account: 2 to 6 months of funds

  • Primary Purpose: To store your money in a secure location so you can use it to pay expected periodic expenses over the next 2 to 6 months. A basic savings account is also where many store their emergency fund. While these accounts typically pay only modest interest, their safety and reliability make savings accounts an excellent choice for stashing cash you want available within the next 12 months. Saving accounts availability is often your overdraft buffer in case your checking account gets overdrawn.

    Action Item: Calculate your anticipated periodic expenses over the next six months, and limit the cash in your savings account to this amount. You don’t want the balances too high, as you can typically get better interest in other bank products, AND if a thief gains access to your debit card, you can limit the damage they do if your savings account links to your checking account.

Higher-interest bank accounts: Lots of choices

  • Primary Purpose: There are several bank accounts for storing your money beyond what you need for short-term expenses. High-yield savings accounts, money market accounts, and certificates of deposit (CDs) provide at least 10x the interest return compared to a regular savings account. But for a higher interest rate, some rules govern how long you need to leave your money untouched in these accounts.

    Action Item: Review your bank’s alternatives for longer-term savings. Pay attention to interest rates and how often they adjust with the market. On high-yield accounts, the interest rate often increases with higher balances, so know what products these are. If CDs are your bank’s strength, consider building a ladder of expiration dates to make your money more available. It’s also good to talk to your banker to review your options.


When you’re trying to decide where to keep your money, there are also tax ramifications to consider. So keep this in mind as you review how your bank accounts work together as a team.