How Much Money Should You Keep in Checking?

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Updated on Thursday, July 29, 2021

Your checking account should contain as much money as you need to cover your regular spending and avoid fees — but not so much that money sits in it each month without doing any work for you. Checking accounts serve as conduits between funds you receive (like paychecks) and spend (like bills). Therefore, how much money you keep in checking is an individual call based on your income, your expenses and your bank account’s requirements.

How much money should I keep in my checking account?

There’s no hard and fast answer to how much you should keep in your checking account — you should determine the amount that works for you, rather than aiming for an average bank account balance. The median amount Americans keep in transaction accounts (such as checking, savings and money market accounts) is $5,300, according to the U.S. Federal Reserve Board’s most recent data — but that’s not necessarily what you need.

Remember the purpose of a checking account: It’s a safe place to park your money (when your institution is FDIC- or NCUA-insured) and provides a convenient way to meet everyday financial needs, like paying bills and withdrawing cash from an ATM. You also need to know how much money is required to open and maintain a checking account at your institution of choice. If an account has balance requirements, you’ll likely be charged fees and penalties if you dip below that amount.

How to determine how much money to keep in your checking account

It’s a good idea to keep an even keel between deposits, expenses, cash needs and bills in your checking account by keeping a budget. Make a running list of your average expenses on mortgage or rent, groceries, utilities, entertainment, clothes and so on for several months, so you know how much you need to keep in your checking to pay for them.

Consider the following aspects of a bank account and your lifestyle to determine how much you should keep in your checking:

  • Deposits: What money do you expect to receive in your checking account on a regular basis? Direct deposits from work or other income sources are likely to provide the basic cash flow into your account.
  • Average monthly expenses: Your average monthly expenses — such as food and entertainment — will probably be paid for with money in your checking account. You need to have enough to cover these expenses or you can incur steep fees — and you definitely want to avoid those!
  • ATM withdrawals: If you withdraw cash from ATMs, you should make sure your checking account comfortably covers your typical cash needs.
  • Recurring bills: What bills do you expect to pay from your checking account? There are bills that are typically consistent — such as rent or mortgage — while some may vary monthly or seasonally. Make sure you’re keeping enough in your account so your payments don’t bounce.

Understand the conditions of your checking account

Here are some basic elements of a checking account to keep in mind as you consider how much to keep in your account:

  • FDIC/NCUA insurance: The Federal Deposit Insurance Corporation (FDIC) insures deposits in banks for up to $250,000 per account, and the National Credit Union Administration (NCUA) insures deposits in most credit unions for the same amount. Both keep your money safe in case your financial institution goes bust, as long as you don’t keep more than a quarter million in one account.
  • Minimum balance requirements: Some financial institutions offer benefits, like interest on your money, in exchange for a regular minimum balance. But if you think it could be challenging to meet the minimum, it’s safer to go with an account that doesn’t require one — fees, charges and penalties can kick in if you go below the mandated level.
  • Overdraft fees: If you spend more money than you have in the account, it’s known as an overdraft. Banks generally charge a high price for overdrafts, and you may need to purchase overdraft protection for an additional charge as well.

What to do if you have too much money in your checking account

The best way to meet financial goals (like a down payment for a home, vacations or retirement) is to consider how much money you should save, then sock that amount away. You also need a plan to increase it — in a bank account, this is typically done through accruing interest.

Many checking accounts don’t offer interest — and even if yours does, the interest rates are likely lower than for savings or other types of accounts. (As of July 2021, the average checking account interest rate is 0.03%, while the average savings account rate is 0.06%.) If you’re keeping significantly more money in a checking account than you need for expenses, you’re forfeiting potential savings and growth that you could be gaining elsewhere.

Here are some investments more likely to make your extra money work for you:

  • High-yield savings account: A high-yield savings account offers higher interest rates than either checking or regular savings accounts. In general, the higher the interest rate, the more your money grows.
  • Money market account: A money market account is a type of savings account that can offer higher interest rates than checking or savings, while also providing the ability to write a limited number of checks. If you’re concerned with how much to keep in savings and checking, a money market account could be a good hybrid option, but be sure you can work with the number of checks you’re allowed.
  • CD: A certificate of deposit (CD) is a type of savings account that offers a higher interest rate than most savings accounts in exchange for keeping the money in the CD for a specific period of time. In general, the longer the term, the higher the interest rate.
  • IRA: An individual retirement account (IRA) is a retirement fund that can help you save for your golden years while benefiting from tax and saving advantages. You can contribute up to $6,000 in 2021 ($7,000 if you’re 50 or older) and receive a tax deduction for the contribution — plus tax-free growth until withdrawal on traditional accounts.

Checking accounts: FAQs

The number is entirely up to you. Some people like to share a joint account with a spouse while keeping a separate account for funds only they can access. Others keep checking accounts for specific purposes or to gain specific perks offered by the accounts.

Only if the number you have makes them hard to manage. If you can’t keep track of them comfortably or run into issues like penalties because you can’t keep up with them all, you’ve likely crossed the line into too many checking accounts.

One more consideration: The FDIC insures types of accounts (checking, savings and so on) and will insure each type for $250,000 at every bank where you have an account; the NCUA insures that same amount for accounts at credit unions. So if you have a lot of money to keep safe in checking and savings, it could be good to have multiple accounts, not bad.

As of July 2021, the average interest rate on interest-bearing checking accounts is 0.03%, lower than the average savings account rate of 0.06% rate and considerably lower than average long-term CD rates.

While the amount in your checking account should be guided by your needs and not by average bank account balance criteria, it can be helpful to know what your peers are doing. The median amount in bank accounts across the U.S. is $5,300.

It’s good to know how much money is guaranteed in a bank account in case of a bank failure (which is rare, but does occur). The FDIC guarantees bank funds up to $250,000, as the NCUA does for credit union funds. In other words, if your financial institution runs out of money, the government would reimburse you as much as $250,000.