Suppose you get a five-figure windfall like an inheritance, a huge income tax refund or a bonus at work. You decide to deposit the entire amount into your checking account. It sounds like a nice problem to have, right?
How much money is too much or too little to keep in your checking account? It varies and depends on your own unique financial situation, but this article will help you determine how much money you should keep in your checking account and why.
How Much You Should Have In Your Checking Account
A good rule of thumb is to have one to two months’ worth of living expenses in your checking account. The rest you should put into savings, like an emergency fund. It’s a good idea to keep enough to cover three to six months’ worth of expenses in emergency savings.
Consider Your Circumstances
That being said, everyone is different and has different financial needs, money situations and income levels. Your take-home pay often dictates how much money you should keep in your checking account. Your financial security and circumstances could very well drive your checking account balance.
Suppose you have not saved a substantial emergency fund that will cover unexpected accidents, unplanned expenses or loss of income. In that case, you will have to rely on the money in your checking account to pay for some emergencies. That money could keep you from having to use credit.
Minimum and Maximum Balance Requirements
Make sure you understand your bank’s minimum and maximum checking account balance policy. You want to avoid being charged fees if your balance falls below your checking account’s allowed minimum.
Many banks offer free checking accounts with no minimum balance requirement. Commonly, banks allow customers to have as little as $5 in a checking account with no fee. If your bank does charge fees, keep in mind that even low fees can add up over time.
Different banks have varying maximum checking account limits, but the Federal Deposit Insurance Corporation insures balances up to $250,000 at FDIC-insured banks per account and depositor. You can rest assured that your money is safe, regardless of the amount you decide to keep in your checking account — as long as it’s under the insurance limit.
Common Checking Account Fees
Even if you avoid paying a fee by keeping enough in your account to meet the minimum balance, you could end up paying other fees on your checking account. Some of those include:
- Paper statement fee
- Non-sufficient funds fee
- Out-of-network ATM fee
- Monthly maintenance fees
- Minimum bill pay account fee
- Overdraft fee
Consider opening an online checking account instead of using your local bank to save on common banking fees. Online banks often have no fees or low fees.
What’s Your Financial Comfort Level?
If you are comfortable with the amount of money in your savings account, emergency fund and investment portfolio, then how much money should you keep in your checking account?
Compared to some other types of accounts, checking accounts typically offer low interest rates, and the rates have steadily declined over recent years. However, accessing your money is relatively quick and easy.
If you’re concerned about interest rates, then you may want to keep most of your money in your savings account and move what you need for paying bills into your checking account as needed. Just make sure you keep careful track of where your money is moving and when — if the transfer from your savings account happens after an automatic bill pay goes through, you might end up with an overdraft fee.
What Is a Checking Account?
Essentially, a checking account is your day-to-day bank account for transactions. Most people use their checking accounts for regular monthly spending and immediate needs, such as:
- Daily and weekly expenses, such as groceries and gas
- Money management
- Monthly expenses, such as the mortgage, rent and entertainment
- Paycheck direct deposit
- Transferring funds to and from other bank accounts
Checking accounts are generally used as transactional accounts. For longer-term savings purposes, experts recommend you should keep your funds in regular savings accounts or money market accounts or in alternate savings vehicles, such as certificates of deposit and investment accounts.
Advantages Of Having a Checking Account
There are plenty of perks to checking accounts beyond just having a safe place to store your money.
The cash you have in your bank accounts is considered a liquid asset. Liquidity is simply the availability of your cash in those accounts. You can quickly and easily access the money in your checking account for any purpose, from paying your monthly bills to making impulse purchases.
After you have determined the amount of cash flow you need each month, maintain that amount in your checking account for easy withdrawals.
When you sign up for direct deposit with your employer, you can have your paycheck sent straight to your checking account. Here are three reasons you would want to do this:
- You get paid on time. No more waiting for a check to arrive in the mail or to clear. You have instant access to your hard-earned money.
- You save time. No more rushing to your bank before closing time to deposit your paycheck.
- You manage your risk. Direct deposit eliminates the risk of losing a physical check.
Other benefits of checking accounts include the following.
|What You Get
|Why It’s an Advantage
|Automatically record and keep track of your spending to help you budget
|Free debit card
|Safer than carrying cash; protection if lost or stolen
|Free bill pay
|Conveniently pay bills online without writing checks or money orders
|Protection and safety
|Consumer checking accounts are FDIC-insured up to $250,000
Checking Account vs. Savings Accounts
Most checking accounts earn very little interest, if any, and those that do earn interest typically earn less than savings accounts. If your goal is saving money, then keeping the bulk of your funds in the account that you use for regular spending is not the best option.
For example, say you decide to keep an average of $5,000 in your checking account to cover your monthly bills, and the interest rate for checking accounts at your bank is 0.06% APY. The interest rate for a savings account at your bank is 0.16% APY. What do you do?
If you average $5,000 in your checking account over 12 months, you will earn $300 in interest over that 12 months. Leaving the same $5,000 amount in your savings account for a year will yield you an extra $800. On first glance, it seems like the savings account is the better option — but that might not be the case.
Although you will gain more interest by storing a monthly sum in your savings account, keeping an appropriate amount of money in your checking account for needed spending may be the better option — savings accounts often have limits on access to your money and the number of allowed monthly account withdrawals.
If you keep what you need for expenses in your checking account, you can still open that higher-interest savings account with any additional funds.
Final Take To GO
Your decision on how much money you should keep in your checking account is not merely a numbers decision. Psychology and your emotions may also carry some weight. Considering your monthly expenses and your comfort level about having access to your cash will help you strike a reasonable balance in the actual balance of your checking account.
- How much money should be kept in a checking account?
- You should keep at least one to two months' worth of expenses in your checking account to cover regular bills or unforeseen expenses.
- How much money does the average person have in their checking account?
- According to SmartAsset, the average American's checking account has a balance of about $9,000. However, that is pulled high by households with higher incomes, so the median amount of $2,900 might be more applicable.
- The average checking account balance by age breaks down like this:
- – Younger than 35: $1,200
- – 35 to 44: $2,000
- – 45 to 54: $2,850
- – 55 to 64: $3,850
- – 65 to 74: $6,000
- – 75 and older: $5,000
- Should I keep more than $250,000 in one bank?
- No. If you have that much in one account, it would be advisable to open another FDIC-insured account at a different bank to make sure all of your money is covered.
Caitlyn Moorhead contributed to the reporting for this article.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- FDIC. 2023. "Deposit Insurance FAQs."
- Consumer Finance. "An Essential Guide To Building an Emergency Fund."
- SmartAsset. 2023. "What Is the Average Checking Account Balance?"
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