Is There Such a Thing as Having Too Much Money in Your Checking Account?

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KEY POINTS

  • You need money in a checking account so you can pay bills as they come due.
  • Since checking accounts often pay minimal or no interest, it doesn't pay to keep a lot of extra cash in one.
  • Better places to keep extra money instead include savings accounts, CDs, and investment accounts.


The quick answer? Yes.

Chances are, you have your money spread across different types of accounts. You might have money in a brokerage account, for example, that you're investing in for different goals, and you might also have money for retirement in an IRA.

Meanwhile, you should make sure to keep a chunk of your money outside of investments, but rather, in cash. That way, your principal is protected.

Now when it comes to the cash portion of your assets, you can look to products like savings accounts, CDs, and checking accounts to house your money. In fact, it's important to keep some cash in a checking account so you have a means of paying bills as they pop up.

But there may come a point when you have too much cash sitting in your checking account. So it's a good idea to pay attention to your balance and make sure you haven't gone overboard.

What's considered too much money in checking?

As a general rule, it's a good idea to keep enough money in a checking account to cover a few months' worth of bills. But if you keep more than that in a checking account, you might lose out on the opportunity to earn interest (or a return) on your cash.

Many checking accounts don't pay interest at all. Some do pay interest, but only a minimal amount of it. You'll frequently score a higher interest rate on your money by keeping it in a savings account or CD. And you might snag a much higher return on your money by investing it, whether in an IRA or a regular brokerage account.

That's why you don't want to go overboard on the checking account front. You won't get much, or anything, back on that cash, so there's no sense in loading it up.

If you have a checking account and a savings account at the same bank, you can generally transfer money from one to the other pretty quickly and seamlessly. In many cases, those transfers will be instant. And you can do it from your bank's mobile app or website.

So, let's say you keep $2,000 in your checking account for bill-paying purposes, but you run into a home repair that's forcing you to write out a $5,000 check. If you have $15,000 in your savings account, you may be able to move funds over on the spot so your checking account has enough cash to cover that bill.

Don't short your checking account either

While you don't want to keep too much cash in your checking account, you also don't want to keep too little money in there. If you go that route, you could run into a situation where you don't have a high enough balance to cover checks you're writing, or to pay your bills with.

If you generally spend $2,000 a month on living expenses, for example, then it's not a bad idea to keep $4,000 in your checking account so you have a nice cushion. But keeping $10,000 in that account is a different story -- one that could hurt you financially.

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