Has anyone ever told you the perfect amount of money to keep in your checking account? Probably not, because there is no magic number. The Federal Reserve reported a median checking account balance of $3,400 for Americans in 2016, but it does not mean that is how much you should have. The amount of money you should keep in your checking account is personal, and it depends on your financial situation and spending habits. However, there are some general guidelines and best practices you can follow to help you find an amount that works for you.
Start with the General Rule of Thumb
You now have a general idea of what to consider as your minimum balance, so you can refine the amount using these general guidelines based on your personal finances and needs.
Cover your expenses. Keep enough money in your checking account to cover your monthly expenses, including rent, utilities, credit card bills, etc. This amount is non-negotiable to help you avoid bounced checks, overdraft fees, or missed payments.
Then triple it. Maintain the equivalent of at least three months of expenses to provide a financial safety net to handle an increase in bills or small unexpected costs without charging or dipping into your savings. You can use this as a safeguard when your balance is at its lowest after you have paid all your monthly bills and are awaiting your direct deposit pay. It is recommended to have six months of savings if you can afford it.
And add a cushion. This is your buffer or discretionary spending when you pull out your debit card or withdraw to splurge on something you want instead of need. Limit the amount to no more than 30% of your monthly expenses.
For example, someone with $3,000 in monthly expenses and a 20% buffer should keep $11,800 in their checking account.
| Three months of expenses | $3,000 x 3 = $9,000 |
| 20% buffer | $9,000 x 20% = $1,800 |
| Total | $9,000 + $1,800 = $11,800 |
Not Too Much and Not Too Little
When you follow the suggested guidelines correctly, you will find an amount that gives you peace of mind that your living expenses are covered. Keeping too much money in a checking account can tempt you to overspend and result in lost earning potential. Transfer the excess to a high-yield savings account, money market account, or a certificate of deposit at a credit union offering a high interest rate.
With too little money, you risk overdrafts, and a consistently low checking account balance could be a red flag to lenders limiting your access to credit. Plus, a low checking account balance can lead to stress about finances.
The right balance in your checking account is crucial to managing your finances effectively. Consider your financial situation and goals, and aim to balance having enough money to cover your expenses and saving money.
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