How Much Money Should I Keep In My Checking Account?


A checking account is a deposit account held at a financial institution that allows withdrawals and deposits. Its purpose is to provide an easily accessible avenue for frequent transactions such as paying bills. As a tool in your money management kit, understanding how much money you should keep in your checking account is crucial for optimal financial health.

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Factors to Consider When Determining How Much Money to Keep in Your Checking Account

Monthly Expenses

Your checking account balance should reflect your exact living expenses, plus a little extra for safety. Monthly expenses vary for everyone. They can be divided into fixed expenses (like rent and utilities) and variable expenses (like groceries, entertainment, seasonal and occasional expenses).

Income Frequency and Stability

If you have a regular income and know exactly how much money you’re getting every pay period, you can plan to keep just enough to cover a couple months worth of expenses plus your extra safety net. If your income fluctuates, it might be prudent to keep a bit more.

Spending Habits

Your spending habits, beyond your regular bills, also impact your ideal checking account balance. Are you a big spender or do you tend to save?

If you frequently make significant purchases, a robust checking account can prevent an overdrawn account. On the other hand, if you’re frugal, a lower balance should suffice, with the excess money better served in a savings account or investment accounts.

Emergency Expenses and Financial Buffer

Life is unpredictable. Having an emergency fund in your checking account for unexpected expenses such as medical emergencies or urgent car repairs can save you from financial distress. A rule of thumb is to have 3–6 months’ worth of living expenses set aside in your emergency savings.

How Much Money Should You Keep In Your Checking Account

To determine exactly how much money you should keep in your checking account, it’s important to consider the following factors:

Average Monthly Expenses

Your checking account should cover your average monthly expenses. These typically include regular outgoings like rent or mortgage payments, utility bills, groceries, and other living expenses.

In addition to these recurring costs, don’t forget to account for seasonal and occasional expenses such as holiday gifts or annual membership fees. Ensuring your account balance can comfortably cover these costs will help avoid financial stress and potential late fees.

Buffer for Unforeseen Expenses

Regardless of how detailed and thorough your budget is, unforeseen expenses can still occur. These unexpected costs could range from a car repair to a sudden medical bill. As such, it’s wise to keep an additional buffer in your checking account. This extra money provides you with the flexibility to handle unexpected costs without disrupting your normal financial routine or risking an overdrawn account.

Emergency Fund

Your checking account is not intended to be your primary emergency fund, but it’s smart to keep a portion of it there. Ideally, this should be equivalent to a month’s worth of living expenses. This provides immediate funds in case of an emergency, while the rest of your emergency fund, usually three to six months of living expenses, can earn interest in high yield savings accounts.

Minimum Balance

Many banks have minimum balance requirements for their checking accounts. Falling below this minimum can lead to monthly maintenance fees or other service charges. Stay informed about these requirements and ensure your account balance always meets or exceeds this minimum to avoid unnecessary fees.

The Risks of Having Too Much in Your Checking Account

While an overstuffed checking account might seem like a sign of financial health, having too much money in your checking account can actually impede your financial growth. Here’s why:

The Opportunity Cost of Idle Money

Money sitting in a checking account typically earns little to no interest. This means that every dollar you have beyond what you need is a lost opportunity to earn more money.

The money that’s idling in your checking account could be growing in a high yield savings account, a money market account, or even investment accounts. The annual percentage yield (APY) on these accounts is generally higher than on checking accounts, meaning your money can work harder and grow faster.

Overdraft Protection Can Lead to Complacency

Many people keep extra money in their checking accounts to avoid overdraft fees. However, this can lead to complacency and make it easier to overspend without realizing it.

Rather than relying on a high checking account balance to guard against overdraft fees, consider setting up alerts that notify you when your balance is getting low. This can help you monitor your spending and avoid the risk of overdrawing your account.

Increased Vulnerability to Theft and Fraud

The more money in your checking account, the higher the potential loss in case of theft or fraud. Checking accounts are transactional accounts that are frequently accessed for online purchases, ATM withdrawals, and debit card transactions. This makes them more vulnerable to fraud compared to other types of accounts.

If your debit card information is stolen or your checking account numbers fall into the wrong hands, you could stand to lose a significant amount of money. Maintaining only the necessary amount in your checking account minimizes potential losses in such unfortunate instances.

Strategies to Optimize Checking Account Use

Regular Monitoring and Rebalancing

Understanding how much cash you’re spending and keeping track of your available checking account balance is key. It allows you to adjust your balance based on your spending habits and helps keep your checking account well-funded without being overstuffed.

Use of Budgeting Tools and Apps

Budgeting tools can help you understand your monthly spending better. They can automate the tracking process and give you a clear picture of how much money you need in your checking account each month.

Automatic Transfers

Setting up automatic transfers to your savings account can help you grow those funds consistently. Just ensure that this doesn’t leave your checking account underfunded.

Splitting Direct Deposits

You can opt to split your direct deposit into different accounts. This can be a valuable tool for maintaining an adequate balance in your checking account while also ensuring your savings accounts and investment accounts are consistently growing.

Regularly Reviewing and Adjusting Based on Changing Financial Situations

Life changes can significantly affect how much money you need in your checking account. Regular reviews of your finances can help you adjust to changes like new monthly bills, increased living expenses, or changes in your income.

Alternatives to Keeping Excess Money in a Checking Account

Savings Accounts

Savings accounts typically offer higher interest rates than checking accounts. Transferring excess money into a savings account can help you earn more over time, making it a safer bet for your surplus funds.


Investing can offer higher returns than deposit accounts that pay interest at a bank, though it comes with more risk. If you find you have too much cash in your checking account regularly, it might be worth speaking with a financial advisor about investment opportunities.

Money Market Accounts and High-Yield Checking Accounts

Money market accounts and high-yield checking accounts can provide higher annual percentage yield than regular checking and savings accounts. These accounts can be a good place to keep excess money that’s still relatively accessible.

Bottom Line

While the average checking account balance varies by individual, a rule of thumb is to keep enough to cover a month or two of expenses. In addition, keep a cushion for emergencies and any potential bank failures.

Maintaining a balance that is too high means your money isn’t working for you, and could be better used in a high yield savings account or investment. On the flip side, you don’t want to risk overdraft fees from an empty or overdrawn account.

The key is balance. An overstuffed checking account means missed opportunities elsewhere, but a checking account well funded enough to cover your bills, a buffer for emergencies, and a bit extra for unexpected expenses will keep your financial life running smoothly.

No matter what, it’s your money. Understanding the ins and outs of bank accounts, especially your checking account, is key to ensuring your money works best for you.

Frequently Asked Questions

How much money should I keep in savings?

The amount of money you should keep in savings largely depends on your personal financial situation and goals. However, a good starting point is to have an emergency fund that covers three to six months’ worth of living expenses.

After building your emergency fund, any additional savings can be allocated towards other financial goals, such as saving for a down payment on a house, planning for a vacation, or investing for retirement.

How much cash should I keep on hand?

The amount of cash to keep on hand depends on personal preference and circumstances. Generally, it’s advisable to have enough to cover small, everyday expenses and emergencies that require immediate cash payment. Some financial experts suggest keeping between $50 to $200.

In case of a larger emergency where cash might be needed, consider a range between $300 to $1,000. Always remember that while it’s important to have some cash readily available, keeping large amounts can pose a risk of loss or theft.

Is it better to keep money in checking or savings?

Whether it’s better to keep money in a checking or savings account depends on your financial needs. A checking account provides easy access for daily transactions and should hold enough money to cover your monthly expenses and a bit extra for unforeseen costs.

On the other hand, a savings account is better for storing money that you don’t need to access regularly. Savings accounts typically offer higher interest rates than checking accounts, allowing your money to grow over time. Therefore, after accounting for your expenses, it’s generally better to keep excess funds in a savings account rather than letting it sit idle in a checking account.

Is my money safe in a checking account?

Yes, your money is typically safe in a checking account. Most checking accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to a limit of $250,000. However, always verify that your bank is FDIC-insured.

What are the advantages of having multiple bank accounts?

Having multiple bank accounts allows you to allocate your money for different purposes. You can have a checking account for daily transactions and bill payments, a savings account for your emergency fund and short-term goals, and investment accounts for long-term goals like retirement. It also allows you to take advantage of different interest rates and benefits offered by various accounts.

How can I avoid monthly maintenance fees on my checking account?

Some ways to avoid monthly fees include meeting balance requirements, setting up direct deposit, or using your debit card a certain number of times per month. Each bank has different policies, so it’s important to understand what your bank requires to waive these fees.

Can I use a credit card instead of keeping a lot of money in my checking account?

Using a credit card for purchases and paying it off in full each month can be a smart strategy to minimize the balance needed in your checking account. This allows you to earn cashback or travel rewards. However, this requires discipline to avoid overspending and accruing credit card debt. Be aware of the interest rates and potential fees associated with your credit card.

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