Keeping too much cash in your bank account could be a costly mistake — here’s how to know if you’ve got too much

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Cash is king, right?

Well, not always. Sometimes you can have so much cash sitting around in your bank account that it turns into a wealth-devouring demon.

On average, American families had about $62,410 in their checking accounts, according to the Federal Reserve’s 2022 Survey of Consumer Finances. For most people, that balance is simply higher than it should be.

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Here’s why keeping too much cash on hand could be a serious mistake and a significant drag on your financial health.

The inflation tax

As of October 2025, the average national deposit rate on a checking account is just 0.07%, according to the Federal Deposit Insurance Corporation (1). That’s nowhere near enough interest to offset the rising cost of living.

In September, annual inflation was 3.0%, according to the Bureau of Labor Statistics (2). That means the average checking account is earning approximately 43x less than the rate of inflation.

But inflation isn’t the only problem. Idle cash also carries opportunity cost: that's the money you leave on the table when you don’t invest in assets that can generate income or growth.

What to do with cash instead

To fight inflation, consider moving some of your money into short- or medium-term securities with higher yields.

For example, Vanguard’s Federal Money Market Fund (VMFXX) offered a 4.08% yield as of September 26 (3). That’s higher than the current inflation rate, which can make it a better option than a checking account to preserve your purchasing power.

If you’re more concerned about opportunity cost, you might look into a low-cost index fund with higher risk – but also, the potential for higher return. Vanguard’s S&P 500 ETF (VOO) has delivered a compounded annual growth rate of 14.7% since its 2010 debut (4). And although past performance does not guarantee future returns, the point stands: keeping cash idle means missing out on growth potential.

You can easily invest in assets like VOO when you use platforms such as Acorns. When you make a purchase on your credit or debit card, Acorns automatically rounds up the price to the nearest dollar and places the excess — the coins that would wind up in your pocket if you were paying cash — into a smart investment portfolio.

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Their smart portfolios give you exposure to assets such as VOO, while ensuring you’re diversified across a number of different investments.

If you sign up now and set up a recurring investment, you can get a $20 bonus investment too.

Read more: Warren Buffett used 8 simple money rules to turn $9,800 into a stunning $150B — start using them today to get rich (and then stay rich)

Gold is often considered another inflation-resistant investment, as it’s a tangible asset with limited supply. Investors often buy gold during periods of high inflation, which in turn increases demand and drives up its price.

With a gold IRA through Thor Metals, you can invest directly in physical precious metals, like gold or gold-related assets within a retirement account. That means you get the tax advantages of an IRA alongside the protective benefits of investing in gold — a potentially attractive option for those looking to hedge their retirement funds against economic uncertainties.

To learn more, you can get a free information guide that includes details on how to get up to $20,000 in free metals on qualifying purchases.

That doesn’t mean you should drain your balance completely. There’s still a healthy amount of cash you’ll want to keep on hand.

How much cash should you keep?

Cash remains your best source of emergency funding. If you suddenly lose your job, face an unexpected medical bill or need a quick repair on your car, you’ll want fast access to some funds.

Most financial advisors suggest keeping an emergency fund worth three to six months of essential living expenses. To find your target, total up what you spend on necessities in an average month, then multiply accordingly.

Another approach is to multiply your after-tax monthly income to build a short-term buffer if you lose your job.

Make sure you’re getting the best interest rate on any money you’re keeping in an emergency account.

To get started, a high-yield account, such as a Wealthfront Cash Account, can be a great place to grow your emergency funds, offering both competitive interest rates and easy access to your cash when you need it.

A Wealthfront Cash Account can provide a base variable APY of 3.75%, but new clients can get a 0.65% boost over their first three months for a total APY of 4.40% provided by program banks on your uninvested cash. That’s over ten times the national deposit savings rate, according to the FDIC’s September report.

With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, you can ensure your funds remain accessible at all times. Plus, Wealthfront Cash Account balances of up to $8 million are insured by the FDIC through program banks.

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Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

FDIC (1); Bureau of Labor Statistics (2); Vanguard (3, 4).

This article originally appeared on Moneywise.com under the title: Keeping too much cash in your bank account could be a costly mistake — here’s how to know if you’ve got too much

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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