How Much Money to Keep In Your Checking Account

Last Updated: February 12, 2022 4 min read
Author: Zach L.

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Just like everyone else, you probably have a checking account for direct deposit and for paying bills every month. Unfortunately, you are earning around 0% interest on that money.

How Much Money to Keep In Your Checking Account

How much money do you really need to keep in your checking account?

Honestly, it depends. Ultimately, you want enough to feel secure and to be able to cover all your transactions and avoid getting an overdraft fee.

Saving vs Investing

Before we get into checking accounts and savings accounts, I want to bring up something really important.

Banks have extremely low interest rates.

Outside of expenses, and emergency savings you should be investing your money.

The national average for bank account interest is a paltry 0.05% APY.

Ally, one of the banks that offers a High-Yield Savings Account (HYSA) is currently offering 0.5% APY.

Now if you were to invest your money in an index fund you could get upwards of an average of 10% APY.

Even if you were using Ally over some other bank, investing your money could bring you returns of over 20x versus keeping your money in a bank account. Obviously, you need to factor in risk, and peace of mind. However, there’s a lot to be said about investing your money over keeping it in the bank.

How Much Money to Keep In Your Checking Account Calculator

Our Checking Account Rule

Ever since we got married we’ve been tweaking our banking strategy. We recently have mostly moved to an online-only bank that helps us avoid maintenance fees, and has a higher interest rate on our savings than traditional brick and mortar banks.

We have always followed one rule for our checking account though:

**Keep a checking account balance that allows us to cover 2-3 months of expenses. **

Everything else is saved or invested. That may seem high to some, but for us, it gives us a sense of security and works as part of our emergency fund.

Why does a checking account balance that equals a few months of expenses work for us? First, let me share how to use a savings account with your checking account.

  • Checking account: A checking account is where all the money that moves around comes in and out. Paychecks, bills, etc.
  • Savings account: A savings account is where you keep longer-term savings and more of your emergency fund.

If your monthly expenses are around $2,000 a month, With our checking account rule you would keep around $4,000 to $6,000 in your checking account.

Let’s assume you are employed, if so that means that on a regular basis there will be money flowing into your checking account when your employer deposits your check. On the other side, you’ll be making regular withdrawals to pay your bills. Like your mortgage or rent, credit cards, and utilities.

If you are able to live within your means, this should more than cover any minor emergencies and protect you from having an overdraft fee.

This approach is not very passive. Currently, we check our bank account about twice a month and catalog all of our transactions and transfer them over to our budget. Because we have part of our emergency fund in our checking, we are able to avoid any issues with transferring money from other accounts or selling off assets. That means when we have a big bill to pay or something comes up, it makes it a lot easier on us, and it decreases money headaches for us.

Why have a savings account? Interest. The answer is interest. Normally, you will earn more interest in a savings account than you would in your checking account. There are some checking accounts that don’t pay any interest at all. Isn’t that nice of you to let the bank hold your money for you for free!

Note: You don’t actually have to have both a savings account and a checking account at the same bank. The important thing is to keep your accounts linked to make things as easy as possible to transfer money between them.

Final Words

For us, it totally works to keep 2-3 months of expenses in our checking account. For you, you may need to calculate your own number based on your budget and your risk tolerance.

If your monthly expenses vary greatly, it might not make sense for you to follow our checking account rule. You may want to play around with the numbers and see what works best for you.

Ultimately, you want to keep enough money in your savings to cover your monthly bills and give you a sense of financial security.