Is $10,000 Too Much to Keep in a Checking Account?

Many Americans use checking accounts to manage their money. When things are going well for you financially, you could find yourself with more and more money sitting in your checking account. You may end up with $10,000 or more, if you earn an above-average income or just keep most of your savings there.

It's exciting to see a big balance when you log into your bank account. But it's also important to have your money in the right place. Here's how to figure out if your checking account is overfunded.

How much to keep in your checking account

A popular guideline is to keep enough money for one to two months of spending in your checking account. For extra security, you can add up to 30% on top of that amount.

So, if you normally spend $5,000 per month, then there's nothing wrong with having $10,000 and even up to $13,000 in your checking account. But if you normally spend $2,000 or $3,000 per month, $10,000 is more than you need there.

By following this guideline, you're unlikely to overdraft your account or have any payments declined for insufficient funds. After all, you have more than enough to cover your spending. You also don't need to check your balance too often. You could do that about once a month. If you only keep enough in your account to cover two weeks of expenses, then you'll be checking it a lot more often to confirm that you have enough for your upcoming bills.

Why you shouldn't overfund your checking account

A checking account is perfect for depositing your paycheck and paying your bills. It's not the place to keep most of your money, though. Checking accounts pay lower rates than other banking products, so your savings won't be earning as much as it could be.

Most checking accounts earn less than 1.00%. Here are a few examples of the rates available with other types of accounts:

• High-yield savings accounts are currently offering up to 5.32%.
• Certificates of deposit (CDs) are currently offering up to 5.55%.
• Money market accounts are currently offering up to 5.30%.

If you have $10,000 in a checking account, there's a good chance it earns under $100 a year in interest. In a savings account, CD, or money market account, it could earn over $500. That doesn't mean it's a mistake to keep that much in your checking account. If you have high monthly spending and are going to use that money to pay bills in the near future, then it makes sense.

The mistake that some people make is treating their checking account like a savings account. While this may be convenient, it costs you money in interest.

Finding the right balance for your bank accounts

Ensure you have enough in your checking account for one or two months of expenses. In your savings account, aim to have enough to cover three to six months of expenses. That takes time, but it's the amount recommended for a suitable emergency fund.

A savings account is also a good place for money you have earmarked for any other savings goals, such as buying a home. CDs are another option if you want to lock in a fixed rate. Your checking account needs enough money to pay your bills, but that's all the money you should have there.