Do You Have Too Much Money in Your Checking Account?

Serious African American couple discussing paper documents, sitting together on couch at home, man and woman checking bills, bank account balance, terms of contract, mortgage, loan agreement.
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Despite all the changes that have reshaped the financial industry over the years and decades, the standard checking account remains the backbone of personal banking. A new study from GOBankingRates shows that more than nine out of 10 people have one. By contrast, only about 72% have a savings account, and less than 12% have a money market account.

Despite the familiarity, a whole lot of guesswork still goes into deciding how much cash to stash in the most liquid of all account types.

“When it comes to how much money to keep in the account, striking the right balance is often a puzzle,” said Jake Hill, CEO of DebtHammer. “An individual might have too little money in their checking account if they habitually find themselves overdrawn or using their credit cards because they’re short on cash. With too much, however, there can be fewer financial opportunities. Ultimately, finding the right balance between having too much and not enough is up to you.”

Here are some tips and things to keep in mind when it comes to your checking account balance.

If You Don’t Have a Budget, It’s a Risky Guessing Game

Your checking account is the workhorse of your personal finance stable, but it’s a rudderless ship without a budget. All roads lead back to your checking account — your credit card bills, insurance premiums, rent or mortgage payments, Venmo, PayPal, streaming subscriptions, utilities and fantasy football dues.

If you don’t have that and all the rest accounted for with a simple budget and spending plan, you’ll never do better than throwing darts when deciding what to allocate to checking.

Checking: What You Plan To Spend Plus a Stuff-Happens Cushion

The experts agreed that once you have at least a loose budget in place, you should put what you think you’ll spend that month in your checking account with a little extra padding for the inevitable surprises.

Upgrade Your Checking Account

The thickness of that padding is where opinions start to vary.

“The recommendation is that the checking account contains some buffer in the amount of 20%-30% of your monthly expenses to prevent regular living overdraws,” said Jennifer White, senior director of banking and payments intelligence at J.D. Power.

Christopher William, CPA, a finance expert and founder of Balanced News Summary, uses what he calls the 10-in-three rule, which allocates checking quarterly.

“I always make sure I have more than 10% of the funds I will need in the next three months,” said William. “In these uncertain economic times, you can never have too much saved, but I find 10% strikes a good balance between too much and not enough. Bills will fluctuate, so it is important to plan and budget conservatively.”

Too Much Money in Checking Is a Good Problem To Have

An overfunded checking account could be a sign of misallocated resources, but misplaced excess cash is a blessing compared to no excess cash at all. Even so, whatever sits unused in checking earns nothing or close to it when it could be compounding a decent yield in savings now that interest rates are high.

Even better, you could put your checking account’s excess fat to work in an ETF or some other vehicle with real growth potential. Just be sure you have enough in savings to cover any checking shortfalls no matter the circumstances for the foreseeable future.

“If your combined bank accounts already have enough to fund six to eight months of necessary living expenses, any additional dollars need to go toward helping you reach longer-term financial goals such as retirement or other investments,” said Kevin R. Chancellor, financial advisor, certified Social Security claiming strategist and CEO of Black Lab Financial Services. “Historically, cash has not kept up with the rising rate of inflation, so every dollar past what is truly needed is potentially at risk for losing purchasing power in the future.”

Upgrade Your Checking Account

Cutting It Close Isn’t Nearly as Risky as It Once Was

Until fairly recently, running a lean checking account came with a real risk of real consequences. If you miscalculated, overdraft fees were a certainty, and they often caused ripple effects that triggered returned check fees, minimum balance fees, insufficient fund fees and more. Sometimes, the bank might have frozen your funds or paused your debit card.

Today, the stakes are much lower.

Not only are many banks eliminating fees altogether, including overdraft fees, but linked savings accounts that double as free overdraft protection are now standard. Also, instant online transfers let you quickly shift money from savings to checking if you see trouble brewing.

Most people now have the luxury of living dangerously — stuffing as much into high-yield savings as possible with only the thinnest of coverage in checking — without all the consequences.

And it appears they know it.

The GOBankingRates study revealed that 37% of people, the biggest percentage by far, keep less than $100 in checking. Nearly 60% keep less than $500.

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