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How Much Money Should I Keep In My Checking Account

Matthew Levy
Matthew Levy
After graduating with a Bachelor of Science in Economics from the University of Victoria in 2010, Matthew developed a passion for helping clients meet their financial freedom through strong, risk-adjusted portfolios. Formerly, he was responsible for managing and co-managing over $600MM in cumulative assets for private households and institutions. Matthew also undertook and completed his CFA® charter in 2015, a rigorous professional credential program promoting the highest standards of education, ethics, and professional excellence in the investment profession.

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Table of Contents

The standard advice is to keep two or three months of expenses in your checking account. However, your circumstances affect how much you save.

Takeaway Points

  • Your regular bills and expenses help determine how much to keep in a checking account.
  • It would help if you had a cash buffer for emergencies.
  • The interest rate attached to your account influences how much money you keep in the account.
  • Maintaining your minimum balance helps you to avoid fees.
  • Automated savings deposits make it easier to save money.

Factors to Consider When Determining How Much to Keep in a Checking Account

The precise amount of money you keep in your checking account depends on your personal circumstances. Consider the following scenarios when coming up with a figure.

Regular Expenses and Bills

At the bare minimum, the money in your checking account must cover your regular bills and expenses.

Mortgage or rent payments

  • Utilities
  • Water
  • Groceries
  • Loan repayments
  • Costs related to your care
  • Childcare
  • Subscriptions

These are typically fixed expenses. As a result, you can create a fixed total as a starting point for how much to keep in your account.

Then, there are unfixed expenses.

For example, you may buy clothes every month. However, you might need more clothes in some months and fewer in others. Regardless, settle on an amount to cover your variable clothes budget.

Going through your monthly receipts and bills is the best way to determine this amount. Add your expenditures together to get a baseline figure.

Emergencies and Unexpected Expenses

Having enough money to cover your regular bills and expenses is a good starting point.

But what will you do if something unexpected happens?

For example, your car may break down, necessitating a trip to a mechanic. Alternatively, your air conditioning unit might malfunction and require repairs.

The general wisdom is to keep between three and six months of monthly expenses saved for emergencies. However, that isn’t always feasible. According to a 2019 CNBC report, up to 40% of Americans would struggle to find $400 to cover an emergency. If you’re living paycheck-to-paycheck, saving three-to-six months of your wages may be impossible.

Jorge Sabat and Emily Gallagher offer different advice. In their research paper, they arrive at the figure of $2,467 in emergency savings. This figure amounts to about one month of the average American salary.

Whatever your figure may be, you must have money set aside to cover emergencies.

Interest Rate on Savings Accounts

Interest rates come into play if you have a checking and savings account. Your interest rate has an impact on how much money you place into the account.

If you have a high interest rate, it may be better to save more money in your checking and savings account. But if you have a low rate, it’s often better to explore other options. Such options include saving money in a high-yield account, saving in a retirement fund, or investing.

Compare the yield of your checking and savings account to other options. Whichever offers the highest yield is where your additional savings should go.

Recommendations on How Much to Keep in Your Checking Account

With the above factors taken into consideration, you may have a general idea of how much money to keep in your checking account. However, there are some recommendations to keep in mind that are separate from the above factors.

Two or Three Months of Expenses

Advice varies on the set figure to keep in your checking account. Many experts recommend one-to-two months of expenses plus a 30% buffer. That buffer acts as your emergency savings, bringing your total closer to three months.

Discipline is the key here.

Most people won’t be able to place two or three months of expenses into their account immediately. After all, you have to pay monthly expenses as well as save them.

Calculate a dollar figure for two or three months of expenses. Then, determine a monthly savings amount that you’ll place into your checking account. Keep saving until you hit the right figure. Then, maintain that amount.

The Minimum Balance to Avoid Fees

Some checking accounts require you to maintain a monthly balance. If you don’t, they charge fees. This balance can come in three forms:

  • Minimum Daily – You have to maintain the minimum balance daily.
  • Average Minimum Balance – Your bank calculates your monthly average balance. They divide the amount in your account each day by the number of days in the month. You have to keep your average above the figure the bank sets.
  • Minimum Combined Balance – The bank averages the amount of money you have across all your accounts.

It’s recommended to stay above your minimum balance. This action ensures you avoid maintenance fees. It may also unlock higher interest rates for checking and savings accounts.

Tips for Maximizing the Use of Your Checking and Savings Account

Once you’re comfortable with the amount of money in your account, you may switch your focus to getting the most out of it. These quick tips can help you to maximize your checking and savings account.

Automate Savings Deposits

It’s easy to lose sight of your monthly savings goal, especially if you have a tough month. By automating savings deposits, you ensure the money leaves your account without manual action.

Try counting your automated savings deposits as part of your monthly expenditures if you take this approach.

Use High-Yield Accounts

There may be better places to save money than a checking and savings account. A high-yield savings account may be the more sensible option. Compare the interest rate attached to your current account to these high-yield accounts. If the latter offers a better rate, move money across to a high-yield account.

Money saved in a high-yield account isn’t always as easy to access as money in a checking and savings account. Only use the high-yield account for money to which you likely won’t need immediate access.

Consider a Budgeting App or Software

Budgeting apps and software allow you to input your expenses to help you manage your finances. They often provide recommendations on how much to save.

Use one of these apps to come up with a figure for how much you need in your checking and savings account.

Your Personal Circumstances Matter

There is a lot of general advice on how much money to keep in a checking account. However, your personal circumstances factor into the equation. You may need more time to save two or three months of expenses. But remember that keeping even a little aside is better than keeping nothing at all.

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