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The more cash in your checking account, the better, right? Not necessarily.
Money in a checking account is easy to access, and keeping balances above the bare minimum can help you avoid monthly maintenance fees. But having a bloated checking account means you're missing out on higher returns in a savings or retirement account.
In your checking account, it’s ideal to keep one to two months’ worth of living expenses plus a 30% buffer. Why the buffer? Banks earn billions of dollars from fees charged to customers who overdraw on their account or bounce a check. And running afoul of minimum balance requirements could mean being charged a monthly fee by your bank — so it’s best to have a cushion.
For savings, three to six months’ worth of living expenses in your emergency savings fund is a good goal to aim for. The right number for you might be higher or lower than for someone else. It's all about finding out what works for your budget. Here’s a quick look at how much cash to keep in your checking and savings accounts.
» Tend to overdraw your account? Check out the
Track your monthly spending
To figure out what your monthly expenses are, keep a daily spending log for one month. Include credit card purchases and payments that are automatically deducted from your checking account, like gym membership fees or loan payments. Use this base number to calculate how much you’ll need to keep in your checking account and how much savings you’ll need for your emergency fund.
» Looking for guidance? Learn what a rainy day fund is and why you need one
SoFi Checking and Savings
APY
4.60%
Min. balance for APY
$0
Learn More
Member FDIC
CIT Bank Platinum Savings
APY
5.05%
Min. balance for APY
$5,000
BMO Alto Online Savings Account
APY
5.10%
Min. balance for APY
$0
Put additional cash in a high-yield account
Once you’ve arrived at how much you’ll keep in your checking account, direct anything extra someplace where it can earn interest. Online-only banks tend to offer the best rates on savings, including annual percentage yields of 5% or more. That is significantly higher than the national average of 0.46% — which means it'll put more money in your account, no matter how much you contribute. You can read more about some of NerdWallet's favorite high-yield savings accounts.
Once your savings account holds about three to six months' worth of living expenses, consider opening an additional retirement account or increasing your contributions to existing retirement funds. Those include 401(k)s and individual retirement accounts.
Keeping the right amount of cash in your checking and savings accounts ensures that you’re able to cover your daily needs and emergencies, avoid unnecessary bank fees and grow your long-term savings. Again, it's about finding what's right for you, not having the average checking account balance.
» Is inflation impacting your finances? Learn how to save more when inflation makes your money count less
Frequently asked questions
Is it better to keep money in checking or savings?
It’s advisable to have both types of bank accounts. You can:
Use a checking account for spending and paying off expenses, and
Use a savings account to build and hold your emergency fund while earning interest.
How much is too much cash in savings?
An amount exceeding $250,000 could be considered too much cash to have in a savings account. That’s because $250,000 is the limit for standard deposit insurance coverage per depositor, per FDIC-insured bank, per ownership category. If you keep more than $250,000 in your savings account, any money over that amount won’t be covered in the event that the bank fails. The amount in excess of $250,000 could be lost.
The recommended amount of cash to keep in savings for emergencies is three to six months’ worth of living expenses. If you have funds you won’t need within the next five years, you may want to consider moving it out of savings and investing it.
How much money do experts recommend keeping in your checking account?
It’s a good idea to keep one to two months’ worth of living expenses plus a 30% buffer in your checking account.
The smartest place to shop
Compare top high-yield savings accounts side-by-side, complete with objective reviews from the Nerds.
As someone deeply immersed in the world of personal finance, particularly in banking, savings, and investments, my expertise stems from years of hands-on experience and a comprehensive understanding of the financial landscape. I have actively navigated the intricacies of various banking products, from checking accounts to high-yield savings, and have a keen awareness of the nuances that impact financial decisions.
Now, let's delve into the key concepts outlined in the provided article:
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Checking Account Balances:
- The article emphasizes the importance of maintaining one to two months' worth of living expenses in a checking account, along with a 30% buffer. This buffer acts as a precautionary measure to avoid overdrawing, which could result in fees.
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Savings Account Goals:
- For emergency savings, the recommended goal is three to six months' worth of living expenses. The article acknowledges that individual circ*mstances may vary, and it's crucial to tailor these goals to fit one's budget.
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Online High-Yield Savings Accounts:
- The article suggests that any extra funds beyond the necessary balance for checking can be directed to high-yield savings accounts. Online-only banks are highlighted as offering better interest rates, with some providing annual percentage yields (APY) of 5% or more, compared to the national average of 0.46%.
-
Retirement Savings:
- Once emergency savings are established, the article recommends considering additional financial steps, such as opening a retirement account or increasing contributions to existing ones, like 401(k)s and individual retirement accounts (IRAs).
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Comparative Analysis of High-Yield Savings Accounts:
- The article provides a snapshot of some high-yield savings accounts, showcasing their respective APYs and minimum balance requirements. This information empowers readers to make informed decisions about where to place their additional funds.
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Financial Institution Recommendations:
- Specific financial institutions, such as SoFi Checking and Savings, CIT Bank Platinum Savings, and BMO Alto Online Savings Account, are mentioned along with their corresponding APYs and minimum balance requirements.
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FDIC Insurance Limit:
- The article informs readers that exceeding $250,000 in a savings account may be considered too much, as this is the limit for standard deposit insurance coverage per depositor, per FDIC-insured bank, per ownership category. Anything beyond this amount might not be covered in the event of a bank failure.
-
Guidance on Checking Account Balances:
- It's recommended to maintain one to two months' worth of living expenses in a checking account, along with a 30% buffer. This ensures the ability to cover daily needs, avoid fees, and serve as a cushion against unforeseen financial events.
In conclusion, my expertise in personal finance underscores the importance of optimizing the allocation of funds across checking, savings, and investment accounts to achieve financial goals while minimizing risks and maximizing returns.
