From Here to Financial Happiness

Day Forty One Added Interest

When we think about making our money work harder, we often focus on selecting better investments for our brokerage and retirement accounts. But we should also give some thought to how we handle our everyday cash.

On that score, consider two strategies. First, run as much of your spending as possible through a rewards credit card, so you earn cash back or travel points. Don't, however, take this as an invitation to overspend. If you end up carrying a balance, the rewards you earn likely won't come close to compensating for the interest you pay.

Second, don't leave unnecessarily large sums languishing in your checking account, where the money will earn little or no interest. A better strategy: Keep just enough cash in your checking account to cover day‐to‐day spending and avoid bank charges. You might move the rest into a high‐yield savings account that's linked to your checking account. Back on day 19, I suggested opening a high‐yield savings account to hold your emergency money. You might also use that account to hold your excess cash – or, if you prefer to keep these pools of money separate, open a second high‐yield savings account.

By shifting cash into a higher‐yielding account, there's the obvious advantage: You'll earn a little interest. You might use the account to hold money earmarked for, say, the mortgage or the credit card bill, and then shift the cash back to your checking account when it's time to pay these bills. Alternatively, you ...