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How Much Should I Keep in My Checking Account?

Updated
Kevin Payne
Robin Hartill, CFP
By: Kevin Payne and Robin Hartill, CFP

Our Banking Experts

Ashley Maready
Check IconFact Checked Ashley Maready
Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page. APY = Annual Percentage Yield

A checking account is a prerequisite for paying for many aspects of modern life -- utilities, gym memberships, and even other financial accounts like credit cards. But while having a checking account is a must, there isn't a hard rule for how much to keep in checking.

Below, we'll explain how much to keep in your checking account.

The right amount of money to keep in a checking account

One helpful rule of thumb is to keep one to two months' worth of spending in your checking account. If you prefer an extra safety net, consider adding 30% to that number as a buffer. So if your monthly expenses total $3,000, you'd want to keep between $3,000 to $7,800 in your checking account.

The rest of your funds should go to savings accounts or retirement and investment accounts. The rationale for keeping at least one or two months' worth of expenses in a checking account boils down to four reasons, which we'll discuss in detail below.

1. You'll largely avoid the risk of an overdraft

Even the wealthiest people can slip up and spend more than they have in their checking account. If your checking account balance falls below $0, you'll incur overdraft fees. You could pay $35 or more for every transaction made while your balance is below $0. Since some traditional banks charge you for up to four to six overdraft fees, you could be hit with up to $210 in charges for multiple overdrafts in a single day. Many banks offer overdraft protection, typically for a fee, to protect you from these extra charges.

2. Pre-authorization holds can hurt

Some merchants are notorious for putting "pre-authorization holds" on debit cards. For example, if you use your debit card to buy gas, the gas station may place a hold on your card for up to $100. This reduces your available balance (but not your actual balance) by that amount. When the actual purchase amount clears your account, the gas station will then release the hold.

Pre-authorizations can tie up your money until they are released. They are commonly used by hotels and rental cars, and can tie up your money for days at a time. Pre-authorizations can hit your checking account balance. A better option? Use a credit card, especially a travel credit card, rather than a debit card for these payments.

Checking account comparison

We recommend comparing checking account options to ensure the account you're selecting is the best fit for you. To make your search easier, here's a short list of standout accounts.

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3. You'll need to meet the minimum balance requirement (and then some)

Most traditional banks require you to maintain a minimum account balance to avoid monthly service charges. These typically range from $100 to $2,500, though most are much closer to the lower end. If your bank has a particularly high minimum balance requirement, you don't want to have to worry about how much to keep in your account. Your priority should be to switch to a no-fee, no-minimum balance online checking account.

Minimum balances aside, how much money can you have in a checking account? There is no maximum limit, but your checking account balance is only FDIC insured up to $250,000. However, as we'll cover shortly, it makes sense to put extra cash somewhere it will earn interest.

4. Liquidity matters

Most vendors take cash, debit, and/or credit cards. However, a select few are cash-only or cash- and debit-only. Having money in a checking account means you're only an ATM or debit card away from making a purchase with a payment-picky vendor. This is especially important when you keep your savings and checking at different banks, and transfers aren't instantaneous.

Admittedly, one to two months' worth of spending is a somewhat arbitrary amount to keep in a checking account. But it's high enough for most people to go a long time without having to move money between accounts and avoid an overdraft.

If you get paid by direct deposit into a checking account biweekly, keeping a checking account balance of one month's spending will all but guarantee you never overdraft your account.

Why you shouldn't keep all your money in a checking account

In a perfect world, we'd all keep our money in savings accounts and skip the checking account altogether. But since many banks restrict savings accounts to six transactions a month, they aren't practical for people who need to pay bills or make debit card purchases. Plus, mixing money that you need for day-to-day transactions with savings can make it harder to keep track of how much is in your emergency fund, as well as how much you have saved for other goals.

Checking accounts are transactional accounts where you keep money you may need in the near future. They also aren't a good place to store all your cash for two other reasons:

  1. Low interest rates: Even the very best checking account pays less in interest than an online savings account or money market account. You want to keep most of your cash where it earns the most interest. A checking account is not that place.
  2. Theft risk: Though this is a small risk, the reality is that money you keep in your checking account can be easily accessed via a debit card. If your card is lost or stolen, your account could be wiped out by unauthorized purchases or ATM withdrawals.

Debit cards have poor consumer protections against fraud. If it takes you too long to realize your account has been compromised, you could be fully responsible for any fraudulent charges. Meanwhile, many credit card issuers offer zero liability for fraudulent transactions. This means you're totally off the hook if someone makes credit card purchases in your name. This is why we advise using credit cards or cash. You may see this as paranoid, but you only need to have your debit card number stolen once to realize how troublesome it can be.

Like many aspects of your financial life, it's about avoiding extremes. Don't stress whether you want to keep a checking account balance of one month's expenses vs. three month's expenses. But don't keep all your money in a checking account when it could be earning interest elsewhere.

Still have questions?

Here are some other questions we've answered:

The Ascent's best checking accounts

Don't get caught paying nuisance checking account fees. Check out The Ascent's top checking account picks to open a fee-free checking account that earns a high interest rate.

FAQs

  • The median balance of transaction accounts (which includes both checking and savings accounts) was about $5,300, according to the 2019 Federal Reserve Board Survey of Consumer Finances. Using the median, or middle number, gives you a more accurate picture of typical savings than the average. The average household savings in transaction accounts was $41,600 in the same survey, but the number is likely skewed by a small number of super savers.

  • Money in a checking account is FDIC insured for up to $250,000 per deposit, per institution, per ownership category, so you don't have to worry about losing money if your bank fails. A bigger risk is that when you pay with a debit card, which is usually linked to your checking account, you get fewer protections against fraudulent activity than you get with a credit card.

  • Sometimes, but not always. Among checking accounts that do pay interest, the annual percentage yield (APY) is much lower than you'd get with a savings account.

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