How Much is Too Much Money to Keep in a Checking Account?

How Much Should You Keep in Your Checking Account?

While you should definitely keep a decent amount of liquid cash handy and accessible, by no means should it all live in your checking account. Instead, it’s considered a good idea to keep one to two months’ worth of living expenses plus a 30% buffer in your checking account—and for reasons you might not even consider.

Minimum Balance Requirement

Not every checking account has a minimum balance requirement, but many do. A minimum checking account balance can range from being $50 to a few hundred dollars, depending on the bank or type of account. Like the name implies, this balance must remain in the account no matter what. If you overspend and your balance drops below the minimum, you’ll incur a fee and you’ll need to replenish the balance. Check with your bank to learn about any specifics that may relate to your account.

Enough to Cover Automatic Payments

Many people prefer automated payments, which means that this money will automatically withdraw from your checking account at various times throughout the month. This could be your rent or mortgage, or your utilities or phone bill. What’s more, utility payments can fluctuate based on how much water you’re using or how the weather changes. Make sure you have enough money in your bank account to cover these expenses, as well as a buffer to cover an especially high bill in case you have your air conditioning blasting in August.

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Your checking account should also have a little cushion to avoid overdrafts in case multiple bills are paid at once before your paycheck clears. It’s also worth noting that you should keep enough money in your checking account to avoid over drafting, which can incur fees.

Money for Everyday Expenses

Think about how you spend money on a daily basis. You might put gas in your car or pay for a bus pass and grab a coffee from a local shop on your way into work, and that’s all before starting your workday! If you get groceries on your way home or have plans with friends to hit a baseball game and grab hot dogs during the seventh inning stretch, that’s all money you’ve spent.

Your checking account should have enough money for everyday expenses like transportation, groceries, going out with friends, and your daily latte habit. You may need to look at past months’ bank statements to get an idea for how much money you’re spending. Your expenses are likely to vary based on your habits, and you should take care not to overspend. In the long run, understanding how much you spend during a month can help you determine where to cut back and how to start saving.

Don’t Keep All Your Money in a Checking Account

You may be tempted to keep your money where you can see it, like in a checking account or stuffed in a mattress. While this may be a viable solution in the movies, you should be putting any excess money to work for you. Look into high-yield savings accounts, CDs, and investments that can earn you money through interest or dividends.

Keep a predetermined amount in your checking account and put the rest in a savings account. This will make you less likely to spend it, especially if it’s tied up for a period of time in a CD or IRA. You should also keep about three to six months’ worth of living expenses in an emergency savings fund, just in case. If you’re the type of person who needs to spend money as soon as you get it, establishing a cushion of savings might be tricky, especially since you’ll need to change some of your habits and move some cash from your checking account to an alternate location.

Keeping the right amount of cash in your checking and savings accounts can ensure that you’re able to cover your daily needs and stay prepared for emergencies, avoid unnecessary bank fees, and grow your long-term savings.