Keeping too much cash in your bank account is a costly mistake — how to know if your stash is sabotaging your savings

Most Americans say they barely have enough cash sitting around to cover an emergency expense. But some, it seems, inexplicably have more than ever just parked in their accounts.

As of 2022, American households held a median $8,000 in their checking accounts — a 30% increase from 2019, according to the Federal Reserve’s latest Survey of Consumer Finances (1).

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Meanwhile, balances in savings accounts and CDs have shrunk since 2025 (2), suggesting Americans are opting to keep their funds handy in more liquid accounts. And yet with inflation on the rise — hitting 4.2% in May — it’s only getting more expensive to keep that much cash close. Here’s why having too much cash may be weakening your wealth.

Inflation reality check

In total, U.S. households are sitting on $14.5 trillion in their checkable deposits, savings accounts and time deposits, Federal Reserve data shows (3). A whopping $5.6 trillion of that was in their checkable deposits at the end of the first quarter of the year — a $1.1 trillion increase from the same period in 2025.

And yet, none of those funds are doing much work. As of June, the average national deposit rate on a checking account is just 0.07%, according to the Federal Deposit Insurance Corporation (4). That’s not even close to enough interest to offset the rising cost of living.

In May, annual inflation was 4.2%, which means the average checking account is earning approximately 60x less than the rate of inflation.

But inflation isn’t the only issue you face when holding onto a hoard of idle cash. There’s also the matter of your opportunity cost, or rather, all the potential growth you leave on the table by opting not to invest in assets that can generate additional income or growth for you.

Read More: About 1 in 5 Americans over 50 has zero retirement savings. Here’s why it’s not too late

So what’s the right amount?

That being said, a certain amount of cash is important to have on hand. You don’t want to be cashing out investments if you ever lose your job, a pipe bursts in your basement or you have an unexpected vet bill. Or worse, putting those expenses on a credit card — where you’ll face an average 23.79% interest rate, according to Lending Tree (5).

It’s all a matter of balance. Generally, financial advisors recommend keeping an emergency fund with three to six months’ worth of essential living expenses.

But some pundits like Suze Orman suggest you may want closer to a year’s worth of expenses handy. And that amount may make sense if you’re someone who’s self-employed or the sole breadwinner in your household — you’ll want to be sure to factor in all these relevant details when deciding how many months of buffer feels right for you.

Once you’ve got that number, to figure out exactly how much cash you’ll need, add up what your necessities cost you on an average month, then multiply accordingly.

Alternatively, you could take a look at your paystub and multiply your after-tax monthly income to come up with how much short-term buffer you’ll need if you lose your job.

As with most money matters, cash management is a balancing act. Too much cash drags your finances down and limits your ability to generate wealth, but too little leaves you vulnerable to being knocked down financially by a strong headwind.

Finding the right balance will keep you — and your family — both secure and confident that you’re not lagging behind the curve.

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Article Sources

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

U.S. Federal Reserve (1); Federal Reserve Economic Data (2), (3); Federal Deposit Insurance Corporation (4); LendingTree (5)

This article originally appeared on Moneywise.com under the title: Keeping too much cash in your bank account is a costly mistake — how to know if your stash is sabotaging your savings

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