How Much Money Should I Keep In My Checking Account?

Young lady pulls money from her wallet for a cash purchase.There’s lots of talk in the world of personal finance about how to best manage a savings account. You might read up on financial experts who recommend keeping three to six months’ worth of living expenses in your savings account, or maybe you’ve seen a tip about socking away enough money to cover larger expenses. Either way, there’s lots of discussion about the ideal amount of money to keep in a savings account.

But what about our checking accounts? Most of us use these accounts on a daily basis. Every swipe of a debit card, every bill we pay and every personal check we write takes money out of our checking account.

How much money should we be keeping in these super-convenient accounts? Let’s find out.

What’s your magic number?
According to a 2019 NerdWallet survey, the average American checking account balance is approximately $2,900 but this number may not be right for you.

Everyone’s financial realities are different, and because of that, we have different answers to the question of how much money we should be keeping in our checking accounts. The general rule of thumb is to try to have one or two months’ of living expenses in it at all times. Some experts recommend adding 30 percent to this number as an extra cushion.

To determine your exact living expenses, track your spending over several months, including all bills and discretionary spending. Be sure to include seasonal and occasional expenses as well.

Why keep that much money in your checking account?
Your checking account is your transactional account. This is where you’ll draw the money for all of your spending throughout the month, so you’ll want to be sure you have enough funds to cover those expenses. But it goes deeper than that. Here are three reasons you want to keep your checking account well-padded at all times:

1. Avoiding overdrafts. Even high-income earners can miscalculate their spending and end up with an overdrawn account. Why risk being charged overdraft fees for every transaction when you can easily avoid this mistake? [Here at Advantage One Credit Union, you can sign up for overdraft protection to ensure you never again pay a fee for an overdrawn account.]

2. Providing a cushion for pre-authorization holds. Some merchants, including those that operate gas stations, hotels, and car rentals, will place a pre-authorization hold on your debit card until you complete a transaction. Pre-authorizations can reduce your available checking account balance by up to $100 per hold. Once your transaction clears, the hold is released and the funds are available to you again. However, until then, the money is tied up. Keeping your checking account well-funded allows you to comfortably agree to pre-authorization holds without fearing an empty or overdrawn account.

3. Keeping liquid funds available. A robust checking account means access to cash is just an ATM transaction away. While most vendors accept various forms of payment, it’s helpful to know you have cash available if and when you need it.

Can I be keeping too much money in my checking account?
While it’s great to keep your checking account well-padded, taking it to the extreme is not recommended. Having an overstuffed checking account means you’re possibly missing out on the higher returns you can earn if you were to keep those same funds in a Advantage One Credit Union Money Market Account or in a Savings Certificate.

Once you’ve determined exactly how much money you should be keeping in your checking account, look into other options for the rest of your funds. You can speak to an FSP at Advantage One Credit Union to learn about our available options and other high-yield options to find the one that’s right for you.

Here at Advantage One Credit Union, we take the stress out of money management. Optimize your Advantage One Credit Union Checking Account by learning the ideal amount of money to keep in your account at all times.

Your Turn:
How much money do you keep in your checking account? Tell us what works for you in the comments.

Checking Account Basics

What you should know about using checking accounts

Nowadays, it seems like nearly everyone has a checking account. It would seem, therefore, that most people are experts when it comes to checking accounts. That isn’t true; however, most people know how much money is in their checking account and not much else. The following information can help you learn about the different types of checking accounts and what options you have for opening checking accounts.

They offer more flexibility than a savings account
“A checking account differs from other bank accounts in that it often allows for numerous withdrawals and unlimited deposits, whereas savings accounts sometimes limit both,” according to Investopedia.

This flexibility is the tradeoff for having lower interest rates than savings accounts. Your checking account is the one that you will draw from when you need immediate money to pay for things like bills, groceries or online purchases.

Money can be deposited automatically, such as from your paycheck, or it can be deposited at an ATM or through a teller. Many financial institutions also offer mobile deposits, which only require taking a photograph of a check on your smartphone.

There are many options for withdrawing also, such as using a debit card or a check at a store or by using an ATM card to withdraw cash. You may also be able to pay bills online, directly from your financial institution’s website.

There are multiple types of checking accounts
Many people don’t realize that there’s more than one type of checking account, and that mistake can be costly.

“Checking accounts can include business accounts, student accounts and joint accounts along with many other types of accounts which offer similar features,” states Investopedia.

Making sure to open the correct type of account means that the account will best suit your needs. Student accounts are beneficial to people who may not meet deposit or balance minimums, while business accounts maximize the benefits that entrepreneurs need most and help business owners keep their personal and business finances separate.

Each person can have more than one
In addition to the fact that there are multiple types of checking accounts, many people don’t realize that they can have multiple of the same type of checking accounts at anytime. Having multiple checking accounts is even encouraged by some financial experts, as an easy way to budget and prevent overspending on certain expenses.

For example, many couples prefer to maintain separate accounts for each partner while also sharing a joint account for bills and other family-related expenses.

“This allows couples the flexibility to make independent financial decisions, since not every financial decision is going to involve both parties,” says certified financial planner Kristen Euretig for Fox News Business.

Other families may wish to split accounts even more, such as having one for account for rent and utilities, another for food and so forth. This makes it easy to see if there is enough room in the budget to head to a restaurant or if cooking at home is a better idea.

You can mix online and brick and mortar accounts
You may also wish to add an online checking account to your portfolio in order to earn money with a higher interest rate. This can be a profitable choice for people who find the restrictions of savings accounts difficult to adhere to, but who still want to find a great interest rate online. Using an online checking account, while maintaining your accounts at your local bank, gives you flexibility because your money is always nearby if you need to make a withdrawal or if you have questions to ask someone in person.

“It absolutely makes sense to open a second account with an online [institution] for a higher yield,” states Euretig. “In addition to higher rates, online accounts often have useful savings features that make it easy to set up automatic savings plans that draw from a traditional brick-and-mortar bank account.”

Many financial institutions offer online banking options
If you don’t wish to open an online only account because you like the option to make easier deposits and withdrawals, you may still be able to take advantage of the ease of online checking if your financial institution offers online tools. Many small community-based institutions now offer mobile tools and online banking options that rival or even exceed those offered by the national chains, so be sure to ask your bank about the options available to you.

Used with Permission. Published by IMN Bank Adviser
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