How Much Money Should You Keep in Your Checking Account?

Your checking account is held at a bank or credit union that allows withdrawals, deposits, and payments. The money in a checking account is liquid—meaning you can retrieve it or spend it immediately. 

Many checking accounts are free and are great for everyday spending, automatic bill payments, and ATM withdrawals. Having a checking account gives you access to liquid funds and an easy way to manage your cash flow. 

When you have enough funds in your checking account, you avoid fees and have a better pulse on your monthly budget. You won’t want to stow away all of your savings in a checking account, though. The excess money should be put in a higher-yield savings account or retirement account. 

How Much You Should Keep in Your Checking Account

Having the right amount in your checking account helps reduce the risk of fees and puts you in a good financial position, even in the case of an emergency. Figure out how much to keep in your checking by considering a few important factors. 

Minimum Balance Requirement 

Checking accounts often require a minimum daily balance in order to avoid charging you a fee or closing your account. Some minimums will be as low as $5, while others might be higher, such as $500 or $1,000. By keeping the minimum amount in your account at the end of each business day, you'll avoid fees or account closure. If a bank doesn’t list a minimum balance for their checking accounts, there may be a general minimum for accounts of any type. Be sure to check the details with your bank or credit union.

Cushion to Avoid Overdrafts

Besides the minimum required by your financial institution, keep enough in your account to avoid overdrafts. An overdraft happens when a debit, such as a purchase, is greater than what you have in your account. For example, if you were to make a $40 purchase, but only have $30 in your account, you will overdraft by $10. Most banks and credit unions charge a fee for overdrafting, which can be anywhere from $20 to $50 or even more.

To avoid overdrafting, keep extra funds in your checking account. When emergencies and unexpected situations arise, you’ll be able to withdraw money without having to worry about fees.

You’ll also want a small cushion for what’s called “preauthorization charges.” Retail stores and restaurants, for example, send through a pre-authorization charge, typically for $1. It allows the company to verify through a small payment that your checking account is valid before they charge for the full purchase. You will receive the $1 back, usually within 48 hours of the preauthorization charge appearing on your account. While these charges are minimal, if you have a few in process at once, and don’t have extra funds, you could experience an overdraft charge, even on a small purchase.

Enough to Cover Utilities

Many people set up automatic monthly payments for utility bills, such as rent, cable, and electric. Some of these bills fluctuate, though. For example, your electricity or gas usage might be higher in the winter, and you don’t always know much the bill will be. Having a buffer in your checking account helps ensure you always have enough to cover bills, even if they increase from time to time. Review previous monthly statements and calculate an average. Overestimate to ensure you always have enough and won't be charged for an overdraft.

You'll also want to keep track of when your bills are paid out of your checking account. Knowing which dates the money is withdrawn will help you plan to have enough to cover each bill.

Everyday Expenses

Financial experts recommend keeping one to two month’s worth of spending dollars in your checking account. They suggest that the rest of your savings be placed in an emergency fund or in a savings account to earn higher interest. Don't know how much you spend in a month? Estimate your spending by tracking expenses through Mint. The app gives you a monthly average of how much you spend, so you know exactly how much to have available in your checking account.

Not All of Your Savings

While you want sufficient funds in your checking account to cover bills, everyday expenses and pre-authorization charges, you don’t want to stow all of your money in that same account. You’re better off putting additional funds in a high-yield savings account or retirement fund. Not only will you earn more, but you’ll be less likely to spend those extra funds accidentally. 

 

How to Protect Your Checking Account

Keep your money and your identity safe. Put a few steps in place to ensure your checking account is as secure as possible. 

Be discreet at ATMs: Cover the keypad when you’re typing in your PIN at an ATM. Make sure no one else can see the buttons you’re pushing. 

Choose ATMs inside the bank: Instead of using an ATM on the street or in a parking lot, opt for ATMs that are inside the bank building. In-house machines are more secure and difficult to hack into. If it's after-hours, choose machines that are connected to the bank or located in the vestibule. Those are safer than standalone machines. 

Set up alerts: Log into your online checking account to set up text alerts for certain balances and big expenses. You’ll receive a notification when certain—or all—transactions occur. If you spot a purchase that wasn't yours, notify your bank to halt the transaction and to make them aware of the fraudulent activity. 

Establish a two-step login: For extra security, opt for a login process that requires two steps. For example, you can choose to use a password and have the bank text you a verification code each time you want to login. By creating barriers for logging on, it helps ensure your data and money stays safe from predators. 

Access your online account with a secure connection: Make sure your device is linked to a safe internet connection, such as your home WiFi network, when you log into your checking account. Certain public connections are easier for hackers to retrieve your personal banking information.

Log in at least once a month: Even if you have alerts sent to you when transactions happen, be sure to log into your online account periodically. Review your statements to make sure nothing looks out of the ordinary and that you weren’t charged any unnecessary fees.

A checking account is a great tool for managing and saving money. Keep an adequate amount in your account to cover living expenses and fluctuating bill payments—while maintaining the minimum required balance. By avoiding unnecessary fees and overdraft charges, you'll save yourself money and stress. Mint can help you track your spending—ensuring you have enough for all life has to offer. 

 

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