How much money should I keep in my checking account?
It's a question that many of us ask ourselves, especially in times of financial stress.
In this post, we'll explore some factors to consider when deciding how much money to keep in your checking account. We'll also share some tips on managing your cash flow effectively.
So, whether you're just starting out financially or looking for ways to improve your current situation, read on for advice on keeping the right amount of cash in your checking account.
How Much Money Should I Have in My Checking Account?
How much money you should keep in your checking account depends on your individual circumstances.
If you have a lot of expenses and bills, you may want to keep more money in your account to avoid overdraft fees. On the other hand, if you have a good handle on your finances and don't mind paying a few overdraft fees, you may get away with keeping less money in your account.
Ultimately, it's up to you to decide how much money you need to keep in your checking account.
Minimum Balance Requirement
In order to prevent paying a fee (or having your account canceled), many checking accounts need a minimum daily balance.
Some minimum amounts will be as little as $5, while others may be more ($500–$1,000). You can prevent fees and account suspension by having the minimum amount in your account at the end of each working day.
If a bank doesn’t specify a minimum amount for checking accounts, a generic minimum may apply to all accounts. It's best to check with your bank or credit union for further information.
What Is the Maximum Amount?
You're limited to a certain amount of money in your checking, savings, money market, or CD account by banks and credit unions. These limits may be set per account or across all of your accounts. For instance, you might be restricted to a $3 million deposit account limit and a total maximum of $5 million across all of your accounts.
Aside from the bank's restrictions, there are additional limitations to consider. These limits, for example, refer to those imposed by the Federal Deposit Insurance Corporation (FDIC).
Average Amount of Money in Checking Account
In 2019, according to Federal Reserve statistics, 98% of American households owned at least one transaction account. Transaction accounts are:
- Money market accounts
- Call deposit accounts (for investment funds)
The mean or average value of these bank accounts in 2019 was $42,000. The median value was $5,300. This means that if you take out the high and low ends of bank account balances, the typical person has just over $5,000 in cash saved in those kinds of accounts.
Related : What Is the Average American Income in 2022?
How Much Should You Keep in Checking?
According to the spending logs, one to two months' worth of living costs, plus a 30% buffer.
What is the purpose of the buffer?
Banks make billions of dollars through fees levied on clients who overdraw their accounts or bounced checks. And failing to meet minimum balance criteria might result in your bank charging you a monthly fee, so it's advisable to keep a buffer.
Related: 14 Ways to Prevent Unnecessary Spending
Why Would You Have That Much Money in Your Checking Account?
There are a few good reasons why you might want to keep a larger balance in your checking account than you think.
Here are three of them:
Preventing Overdrafts
One of the biggest risks of having a low balance in your checking account is that you could end up overdrafting. This happens when you spend more money than you have in your account, and the bank covers the difference. However, they usually charge a fee for doing so — and it can be a pretty hefty one at that.
To avoid this, you’ll want to make sure you always have enough money in your account to cover any potential purchases or withdrawals. Keeping a larger balance will help to ensure this.
Providing a Cushion for Pre-Authorization Holds
These are funds set aside by the bank when you make certain purchases, such as booking a hotel room or renting a car.
The problem is that these holds can sometimes take a few days to be released — meaning that you might not have access to those funds during that time. This can leave you in a tight spot if you need to cover unexpected expenses.
To avoid this, you’ll want to make sure you have enough money in your account to cover any potential pre-authorization holds. Keeping a larger balance will help to ensure this.
Maintaining Liquid Funds
If you keep liquid funds available, you’ll have cash on hand to cover any unexpected expenses that might come up.
For example, if your car breaks down or you need to make a last-minute trip to the doctor, you’ll be glad you have the money available in your account to cover those expenses. If you don’t have a lot of money in your account, you might have to put those expenses on a credit card, which can end up costing you more in the long run.
So, there are a few good reasons why you might want to keep a larger balance in your checking account. Just make sure you’re aware of the potential fees that come with doing so.
How Should You Manage Your Money?
When it comes to managing your money, there are a lot of things to think about. You want to make sure that you're putting your money into something that will be profitable, and you also want to keep track of your spending so that you don't overspend.
One of the best ways to manage your money correctly is to put some of your cash into savings. This way, you'll have a cushion in case of an emergency, and you'll also be able to earn interest on your money.
Another important thing to do is track your monthly spending. This will help you see where your money is going, and it will also help you spot any areas where you may be overspending.
If you're not sure where to start when it comes to managing your money, there are a lot of resources available to help you.
You can talk to a financial advisor if you feel like you should be led through the process. Include charges for things like gym memberships or loan payments deducted automatically from your checking account.
Whatever way you choose, the important thing is that you make a plan and stick to it. By taking the time to manage your money correctly, you'll be in a much better position financially in the long run.
Read more: 11 Reasons Why You Need an Emergency Fund of $500
Read more: How Much Should You Have Saved by 30?
Bottom Line
So, how much money should I keep in my checking account?
It depends on your circumstances. If you have a lot of bills to pay and not a lot of savings, it might be a good idea to keep as much money as possible in your checking account, so you can easily access it when you need it.
Hopefully, this post has given you a good place to start when it comes to figuring out how much is right for you.
