Here’s How Much Money You Should Keep in a Checking Account

You most likely have a checking account, but do you know how much to keep in it? Experts say there are downsides to keeping either too little or too much money in checking.

While keeping too little cash in a checking account and getting dinged with overdraft fees is undesirable, Americans with a lot of money in such low-yielding reserves can leave valuable interest on the table.

Federal Reserve raising interest rates is one of the their highest level It’s been there since 2008 that people are seeing higher returns on the money they save — that is, if they store those dollars in the right places.

Here’s what you need to know about splitting between your checking and savings accounts.

Build a buffer to avoid overdrafts

Checking accounts are used as a place to store money that goes toward everyday purchases and paying monthly bills. Depositing and withdrawing cash from these types of accounts is easy using an ATM machine.

“Use this account for daily transactions and keep sufficient balance in the account to avoid fees,” Ted Rossman, senior industry analyst at, told CBS MoneyWatch.

Experts recommend stashing enough cash in a checking account to cover about two months of expenses and a 30% buffer.

“Checking accounts are usually only used as operational accounts. Money is constantly being deposited and withdrawn, so you don’t want to move too much money, but you also don’t want to make the mistake of leaving too much money in there, said Shawn Anderson, a wealth strategist and president of Anderson Financial Strategies.

Owners of very lean accounts take a risk Getting dinged with overdrawing and hefty fees,

In 2021, the average fee for over-withdrawals from an account was a record $33.58, according to a Bankrate survey, a 22-percent increase over the previous two years. These fees have created a whopping $9 billion annually in overdraft, ATM and other fees for big banks, according to the Center for Responsible Lending.

“These kinds of things can really start a snowball effect to a bad financial situation,” Anderson said.

“dead money”

Given that this type of account usually doesn’t reward cardholders with any interest, don’t let your checking account get too bloated.

“You don’t want to make the mistake of leaving too much money out there, because it’s essentially dead money,” Anderson said. “It’s very rare to earn interest on a checking account.”

If you have extra money after calculating two months’ expenses plus a buffer, the next step is to put two to four months’ worth of expenses into a high-interest savings account.

Moneywatch: What to know about switching investment strategies for retirement


How much interest is earned on savings accounts?

Smaller online institutions are currently advertising interest rates as high as 3.91%, compared to the roughly 0.1% larger banks offer.

At that rate, with $10,000 in a savings account, you’d earn an extra $390 per year, risk-free.

“Deposit rates are the most attractive we’ve seen in years — it’s a glimmer of hope for interest rates to rise,” Rossman said. “Smaller institutions compete on rates and consumers who shop around can certainly be rewarded.”

Because deposits of big banks soared while people tried and saved money during the pandemic, they were not encouraged to advertise attractive savings rates to consumers.

Even if you already have a savings account, look at its annual percentage yield and compare it with what other banks offer, noting that they can vary widely.

“Some banks may charge ridiculously small amounts just to say they pay interest. Big banks are notorious for this,” said Katie Brewer, a Dallas-based certified financial planner. “The good news about higher interest rates is that it shouldn’t be hard to get some good interest on cash.”

losing interest

Not everyone is aware of how savings accounts can be helpful in growing one’s own wealth.

Savers could have earned $42 billion more in interest in the third quarter of this year if they kept money in high-yield savings accounts versus accounts at big banks, according to a Wall Street Journal analysis of S&P Global Market Intelligence data .

“Some of it is a knowledge gap, and some people just don’t have the money to save,” said Courtney Richardson, an investment advisor and founder of The Ivy Investor.

“Give yourself a cushion and put the rest of the money in a place where you’re going to get your most bang for your buck,” Richardson advises.

To be sure, more than half of Americans earn between $100,000 and $150,000 paycheck to paycheck, according to LendingClub, and they don’t have excess reserves to invest.

Bankrate’s Rossman urged them not to get discouraged.

“While we recommend saving six months’ worth of expenses, only 1 in 4 people have,” he said. “But saving is a journey, not just a destination, and the habit of saving is key.”

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