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The more cash in your checking account, the better, right? Not necessarily.
Money in a checking account is easy to access, and keeping balances above the bare minimum can help you avoid monthly maintenance fees. But having a bloated checking account means you're missing out on higher returns in a savings or retirement account.
In your checking account, it’s ideal to keep one to two months’ worth of living expenses plus a 30% buffer. Why the buffer? Banks earn billions of dollars from fees charged to customers who overdraw on their account or bounce a check. And running afoul of minimum balance requirements could mean being charged a monthly fee by your bank — so it’s best to have a cushion.
For savings, three to six months’ worth of living expenses in your emergency savings fund is a good goal to aim for. The right number for you might be higher or lower than for someone else. It's all about finding out what works for your budget. Here’s a quick look at how much cash to keep in your checking and savings accounts.
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Track your monthly spending
To figure out what your monthly expenses are, keep a daily spending log for one month. Include credit card purchases and payments that are automatically deducted from your checking account, like gym membership fees or loan payments. Use this base number to calculate how much you’ll need to keep in your checking account and how much savings you’ll need for your emergency fund.
» Looking for guidance? Learn what a rainy day fund is and why you need one
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Put additional cash in a high-yield account
Once you’ve arrived at how much you’ll keep in your checking account, direct anything extra someplace where it can earn interest. Online-only banks tend to offer the best rates on savings, including annual percentage yields of 5% or more. That is significantly higher than the national average of 0.46% — which means it'll put more money in your account, no matter how much you contribute. You can read more about some of NerdWallet's favorite high-yield savings accounts.
Once your savings account holds about three to six months' worth of living expenses, consider opening an additional retirement account or increasing your contributions to existing retirement funds. Those include 401(k)s and individual retirement accounts.
Keeping the right amount of cash in your checking and savings accounts ensures that you’re able to cover your daily needs and emergencies, avoid unnecessary bank fees and grow your long-term savings. Again, it's about finding what's right for you, not having the average checking account balance.
» Is inflation impacting your finances? Learn how to save more when inflation makes your money count less
Frequently asked questions
Is it better to keep money in checking or savings?
It’s advisable to have both types of bank accounts. You can:
Use a checking account for spending and paying off expenses, and
Use a savings account to build and hold your emergency fund while earning interest.
How much is too much cash in savings?
An amount exceeding $250,000 could be considered too much cash to have in a savings account. That’s because $250,000 is the limit for standard deposit insurance coverage per depositor, per FDIC-insured bank, per ownership category. If you keep more than $250,000 in your savings account, any money over that amount won’t be covered in the event that the bank fails. The amount in excess of $250,000 could be lost.
The recommended amount of cash to keep in savings for emergencies is three to six months’ worth of living expenses. If you have funds you won’t need within the next five years, you may want to consider moving it out of savings and investing it.
How much money do experts recommend keeping in your checking account?
It’s a good idea to keep one to two months’ worth of living expenses plus a 30% buffer in your checking account.
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FAQs
Though the amount you want to save may vary based on your living expenses, the number of dependents you have, and risk tolerance, aim to put away one to two months' worth of living expenses in a checking account and an additional two to four months in a savings account.
Should you keep more money in your checking or savings? ›
Savings account: 2 to 4 months of expenses
After allocating one to two months of your expenses into a checking account, Anderson says that the two to four months of additional reserves should be put into a savings account — specifically a high-yield savings account.
How much money should you keep in a regular checking account? ›
The general rule of thumb is to try to have one or two months' of living expenses in it at all times.
Is $20,000 a good amount of savings? ›
Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you'll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.
What is the 50 20 30 rule? ›
One of the most common types of percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
How much should a 30 year old have saved? ›
Fidelity suggests 1x your income
So the average 30-year-old should have $50,000 to $60,000 saved by Fidelity's standards. Assuming that your income stays at $50,000 over time, here are financial milestones by decade. These goals aren't set in stone. Other financial planners suggest slightly different targets.
Why you shouldn't keep a lot of money in checking account? ›
If your debit card is stolen and you keep a large amount of money in your checking account, a thief can drain your account before you might even realize the money is gone. Keeping enough to cover your expenses—but not too much to put your money at risk—is a good balance to maintain to keep your money safe.
How much cash should you keep in savings? ›
For savings, aim to keep three to six months' worth of expenses in a high-yield savings account, but note that any amount can be beneficial in a financial emergency. For checking, an ideal amount is generally one to two months' worth of living expenses plus a 30% buffer.
Is it better to keep money in savings or cash? ›
Before you start investing for longer-term goals, it's important to have an emergency fund with around three to six months' worth of expenses. Keeping these in a checking, savings, or MMA is best because these accounts are liquid.
How much does an average person have in their checking account? ›
Average household checking account balance by gender
| Gender of reference person | Average checking account balance in 2022 | Median checking account balance in 2022 |
|---|
| Male | $20,221.19 | $3,800.00 |
| Female | $8,272.74 | $1,200.00 |
Oct 18, 2023
Most financial experts suggest you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000. Personal finance guru Suze Orman advises an eight-month emergency fund because that's about how long it takes the average person to find a job.
How much do most people have in savings? ›
In terms of savings accounts specifically, you'll likely find different estimates from different sources. The average American has $65,100 in savings — excluding retirement assets — according to Northwestern Mutual's 2023 Planning & Progress Study. That's a 5% increase over the $62,000 reported in 2022.
What percent of Americans have 20k in savings? ›
Most Americans have $5,000 or less in savings
| Savings account balance | Percentage of respondents |
|---|
| $500 to $1,000 | 8% |
| $1,001 to $5,000 | 22% |
| $5,001 to $10,000 | 8% |
| $10,000 to $20,000 | 7% |
3 more rowsOct 18, 2023
According to the Ramsey Solutions post, the recommendation is to invest 15% of your household income for retirement. The article uses the example of a household income which is $80,000 annually. Based on these earnings, each year you need to invest $12,000 towards your retirement savings.
Is 100k in savings a lot? ›
When your savings reaches $100,000, that's a milestone worth marking. In a world where 57% of Americans can't cover an unexpected $1,000 expense, having a six-figure savings account is commendable.
What is the ideal amount to have in savings? ›
At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items. This is called the 50/30/20 rule of thumb, and it provides a quick and easy way for you to budget your money.
How much should I put in my savings per check? ›
One popular budgeting method, the 50/30/20 budget, recommends setting aside a total of 20% of your paycheck for your savings goals, including the magnum opus: retirement. Experts say that's a fair rule of thumb.
What is the best savings to checking ratio? ›
How Much Cash to Keep in Your Checking vs. Savings Account. Aim for about one to two months' worth of living expenses in checking, plus a 30% buffer, and another three to six months' worth in savings.
How much is too much to keep in a savings account? ›
FDIC and NCUA insurance limits
This insurance protects your money if the financial institution you bank with goes out of business or otherwise can't afford to let you withdraw your money. So, regardless of any other factors, you generally shouldn't keep more than $250,000 in any insured deposit account.
