How Much Money You Should Keep in Your Checking Account
Keeping too much money in your checking account can cause you to miss out on big potential investment gains, but not leaving enough money could mean not having enough money to cover your essentials like gas and groceries.
The amount of money you should keep in your checking account will depend on factors unique to you, such as how many other liquid accounts you have, what your expenses are and how regular your income is. But if you’re looking for a way to determine how much money you should have in this account to feel financially secure while not losing compounded growth, here’s what you need to know.
How much money should you have in your savings account?
A general guideline is to have enough money in your checking account to cover one to two months’ worth of expenses, plus a 30% buffer. For example, say you spend about $6,000 on your expenses, including accommodation, utilities, groceries, gas and entertainment, such as dining out with friends. You may want to keep a minimum of $7,800 in your checking account.
Remember that financial advisors generally recommend having an emergency savings account covering six to 12 months of expenses. You’ll want to keep this separately, like in a high-yield savings account.
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Why is it important to have a hard drive?
Having up to two months’ worth of expenses and a cash buffer in your checking account can help ensure that you can cover variable expenses and that all bills are clear between billing cycles. That way, you won’t have to worry about racking up interest on your credit card or taking out a loan to cover unexpected expenses.
Saving enough money in your checking account also allows you to avoid overdraft fees and maintain minimum balance requirements. Meeting the balance requirement usually allows you to avoid maintenance charges.
You can also invest with more confidence knowing that you have enough money in your bank account to cover short-term expenses. Putting every last penny in your stock portfolio can put you in a situation where you are forced to sell stocks even if the market is down.
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What if you want to save more?
There are many reasons you may want to have more cash available right now, such as if you are self-employed and your income is unpredictable or if you are expecting a large medical bill.
But because most checking accounts don’t pay interest on balances, you’ll probably want to keep that money somewhere else. You’ll earn more interest if you take any extra money and move it to a high-yield savings account or certificate of deposit (CD). Just remember that CDs require you to lock up your money for a certain period of time — three months to five years — and the rates on high-yield savings accounts are variable rates, meaning banks can change them whenever they want.
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