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Banking Basics

How Much Money Should I Keep in My Checking Account?

If you're asking, "How much is too much to keep in my checking account?", it's your lucky day. Learn about the different accounts you should be using and when to move your money around.

Stephanie Colestruck • August 31, 2021

For most of us, a checking account serves as Grand Central Station for our money. It’s a place where our paychecks are deposited, bills are paid out, and we can monitor and track our monthly spending. 

But a checking account shouldn’t be the only place we put our cash! (And we shouldn’t necessarily leave our money in there all month long.)

If you’re asking, How much money should I keep in my checking account?, then you’re in luck. We’re here to walk through the different accounts you should be using, when to move your money around, and how much is too much to keep in a checking account.

In This Article

  1. How Much Money to Keep In Your Checking Account
  2. Checking vs. Savings Accounts - Where Should I Keep My Money?
  3. When to Move Your Money from Checking to Another Account
  4. Checking Account FAQs
  5. Conclusion

How Much Money to Keep In Your Checking Account

Your checking account is considered a transactional account. That that it’s an account intended for your day-to-day transactions. Money flows in and out of your checking account, which probably sees everything from your paychecks to your car payments, electric bills, and rent or mortgage payments. 

According to the Federal Reserve, U.S. households keep a median balance of $5,300 in their checking accounts. (The average checking account balance? A whopping $41,700!) 

This doesn’t necessarily mean that you need to keep so much cash in your checking account, though. In fact, the right balance for you depends on your household’s unique finances.

General rule of thumb: You should keep enough money in your checking account to cover any recurring monthly bills — like rent or mortgage payments, utilities, car payments, or your student loans — for one to two months. (If you regularly get cash from an ATM, ensure that you have a large enough buffer for those withdrawals, too.)

Here’s a simple question: Do you use your checking account for basic household expenses (think grocery shopping, gas station fill-ups, shopping, and other purchases)? 

  • If yes: You may want to increase your average balance. 
  • If no: You may not need to keep that money in your checking account all month long.

Checking vs. Savings Accounts - Where Should I Keep My Money?

Keeping a portion of your funds in a savings account can be a great way to earn extra money in the form of interest. 

You can often open a savings account at the same bank that offers your checking account. This makes it easy to transfer money back and forth as needed, and can also act as an overdraft buffer. 

Another option is to open a savings account at another bank, such as an online institution. While transfers may take a bit longer, this can be a smart way to snag a better interest rate on a high-yield savings account.

General rule of thumb: You should keep enough money in your checking account to cover up to two months’ worth of expenses and provide you with a small buffer for cash and unexpected expenses. The rest? You can put it into a savings or other account, such as a certificate of deposit (CD) or money market account (MMA).

When to Move Your Money from Checking to Another Account

Not sure if you’re keeping too much money in your checking account? Here are some times you may want to consider transferring funds to another account (such as savings) instead:

 

1. You’re not earning much interest.

While some checking accounts offer interest on the balance, it’s not usually a very competitive rate. You’ll get the highest returns from a dedicated savings account, especially a high-yield savings account or MMA.

Pro Tip: while the average checking account interest rate is 0.03%, according to the FDIC, you can earn 0.50% APY by opening a Chime Savings Builder account. That way, the cash you aren’t actively using to cover monthly expenses can earn you extra money while it waits.

 

2. Your account is growing each month.

If your average checking account balance is climbing steadily month over month, especially if your expenses aren’t dropping, you may need to start moving money to another account.

Pro Tip: Your checking account balance should cover one or two months’ worth of expenses, plus a buffer that makes you comfortable. But if you’re watching that balance climb continuously, consider transferring more into an interest-bearing savings account.

 

3. You don’t have any plans for your money.

Without a goal for your savings, it can be easy to let money just sit in your checking account. By creating specific plans for your savings, though, you can not only make moves toward your future, but also put your money to work for you in the process.

Pro Tip: Make sure to build a solid emergency savings, save for important financial goals (like the down payment on a home), and contribute to things like retirement accounts. If you’re falling short with any of those goals, set up automatic transfers from your checking account each month.

Checking Account FAQs

What’s the difference between a checking and savings account?

There are a few very important differences between checking and savings accounts. The first is that a checking account is considered a spending account, with money flowing in and out as the month goes on. There are no incoming or outgoing transaction limits on a checking account, so you can deposit or withdraw as needed. 

A savings account, however, is meant to primarily receive incoming deposits. You can withdraw funds as needed, but federal law generally limits you to six withdrawals per statement cycle. After that, you may incur fees.

Savings accounts can generate extra money in the form of interest, as well. Checking accounts, on the other hand, generally offer little to no interest on your balance.

How often should I move money from checking to savings?

If you prefer to automate your savings, you have two options: set up regular transfers from one account to the next, or choose a bank that rounds up your purchases into savings.

An automatic transfer can be set up to move money from checking to savings once a month, weekly, or on whatever schedule works for you and your monthly cash flow. These transfers are predictable and can be budgeted for, and you can make changes at any time.

If you choose a product like the Chime Spending Account, you can save a little bit every time you spend. With Chime online banking, your debit card purchases are rounded up to the next whole dollar each time you swipe your card to make a purchase. The extra change is added to a savings account, so you can grow your balance without feeling a pinch.

Beyond that, you should move money from checking to savings whenever you notice your balance consistently growing larger, or if your savings account balance is dwindling.

How much money do I need to open another bank account?

Many banks will have minimum deposit requirements in order to open a new checking or savings account. This minimum deposit will vary from one bank to the next, and even depends on the type of account you open.

However, you can also open a bank account with no money. There is no minimum deposit requirement when you open a Chime online banking account, for instance, so you can put as little (or as much!) in your account as you’d like.

Conclusion

A checking account acts as your money’s central hub, overseeing both incoming deposits and outgoing transactions throughout the month. But while checking accounts serve as the typical landing pad for your cash, that money shouldn’t necessarily stay there forever. 

How much to keep in checking — and how much you should keep in savings — depends on your personal goals, monthly expenses, and spending habits. By utilizing more than just a checking account, though, you can prevent overdrafts, meet your savings goals, and even earn a little extra along the way.

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