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How Big Is Your Checking Account?

On our LivingBelow Your Means discussion board last month, community member foobarista raised an interesting topic, saying:

"I've noticed in some (Fool) boards that people talk about having fairly large amounts of money (more than one would need for typical monthly expenses) in checking accounts.. Why would someone routinely carry a big balance in a checking account?"

His query generated some 30-plus responses. Below are snippets from a few of them -- check them out and see whether you get any good ideas. Then drop into the board to read the entire discussion, and many others.

  • DBAVelvet74 said: "I keep my checking account as low as possible. My goal is to have less than $20 when my next paycheck is deposited. Twice a month I figure exactly what will be coming out of the next paycheck. If I need more to cover it I transfer it in from my MM (money market account) and if I have more than I need I transfer it out to my MM. Of course I have a smaller checking account that I keep spending money in. I only use the debit card for that account and rarely write checks off the main account (if I need to I transfer back in to cover it).

  • millerpim replied: ".(keeping a) checking account as low as possible (is) a problem for me because I have one of those interest-bearing checking accounts where I get free checking, free checks, free stop payment requests, and I don't know what else for maintaining a balance of $1,000 or $2,000; I'm not even sure which. If I were to write my account down to $20, I'd pay service fees."

  • reallyalldone offered some reasons why someone might carry a big balance in a checking account: "In some cases, they are getting as much interest as they would be on a CD and interest rates have been rising so better to have it in checking. Waiting for an investment opportunity. Waiting for a big bill. Planning for a large purchase. And in my mother's case, because she wants to."

  • martybl admitted that he keeps a rather large balance in his own account, and listed these reasons why: "Laziness, service, investment return and safety." He went on to note that he owns stock in the bank (Bank of America (NYSE: BAC  ) ): "I like the company, they pay a good dividend, and I figure that if they make a few bucks from me, they'll eventually return some of it."

  • auctionnoodle responded, pointing out that savings accounts such as those at ING would generate a lot more in interest: "If you deposit $40,000 in ING, you will earn $1319 in one year and in 5 years you'll have earned $6580. All while you sleep and your money works for you. Not bad." (Check out our Savings Center for guidance on how to get the most bang for your bucks, as well as some special CD rates for Fools.)

  • 2gifts offered her own clever system: "I keep a $3,000 minimum in our personal account and in (my husband's) business account that I never add into the balance. That is the minimum that the credit union requires so that checking balances can earn interest.. Another reason that I don't like to keep my checking account without a cushion is to avoid any penalties caused by errors.. I also consider the checking account cushions (which total $6,000 since we currently have two checking accounts) to be a part of our emergency fund. It is cash that is readily available and doesn't require a trip to the bank or even a transfer to access. If necessary, I could simply write a check that goes 'negative' on the register because that money isn't included, but is really a covered check since I know the money is in the account. This also means that I sort of forget about that money, so there's no fear that I won't have an efund (emergency fund -- you have one, right?) when I need it."

  • Finally, FreeCashFlow0714 recommended keeping money in places other than banks: "I say that if you're laughing all the way to the bank, the joke is on YOU! I avoid keeping more than a few hundred dollars in the bank. I direct deposit my ENTIRE paycheck into my Vanguard Treasury money market fund."

What do you think about this? How do you deal with your checking account? Share your thoughts on our discussion board.

LongtimeFoolcontributorSelena Maranjiandoes not own shares of any companies mentioned in this article.

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