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Chances are, you’re part of the 95% of Americans who have a checking account. You use your checking account for everything from paying bills to getting paid—so yeah, your checking account is a huge part of your financial life.
But how much money do you really need to keep in your checking account, anyway?
If you have too little, you could face overdraft fees and unpaid bills. But too much money in the bank increases your liability for theft. Oh, and you’ll miss out on better interest rates, too.
The median checking account balance for Americans is around $2,000, but everybody has to find their magic number. Keep in mind that your ideal checking account balance should be fine-tuned to your financial life; there’s no black-and-white answer to how much money you need in your checking account.
5 tips to master your checking account balance
Fortunately, you’re perfectly capable of finding your magic number. Use these 5 steps to calculate how much, exactly, you need to keep in your checking account.
1 – Check bank requirements first
Before we start digging into the math of this, see what your bank says first. Every bank has rules about how much money you have to keep in your checking account to keep it active (and in some cases, avoid annoying fees).
Always read the fine print on your checking account contract. Your account minimum can range from as little as $5 all the way up to $1,000, so it’s always good to know your bank’s policy before you calculate your minimum checking account balance.
2 – Track your monthly expenses
The purpose of a checking account is to cover your bills, as well as any unexpected or incidental expenses. Before you can do that, though, you need to know what you’re spending every month. Create a budget and track expenses like:
- Rent or mortgage
- Utilities
- Gas
- Insurance
… and so on.
Pay close attention to your discretionary spending, which changes a lot from month to month. Try to track at least 3 months of expenses so you get an idea of your average spending.
Bills like utilities, insurance, and food will change by month or season, so the more data you have on your spending habits, the easier it will be to find your true monthly average.
3 – Keep two months’ worth of spending available
After calculating your rough average monthly expenses, you should aim to have 2 months’ worth of expenses in your account.
Having just one month’s worth of money in your checking account won’t be enough to keep your account open or cover incidental expenses, like new tires for your car, so that’s why the experts recommend keeping two months’ worth of expenses on hand.
So, if you spend $2,000 a month on average, you should keep $4,000 in your checking account.
If that’s too much money for you to save right now, try to keep at least one month’s expenses in the account plus 30%. So, for example, you’d save $2,000 in monthly expenses plus an additional 30%, which would be $2,600 total in your checking account.
This will protect you from overdraft fees without busting your budget.
4 – Route extra funds elsewhere
It’s tempting to toss all of your money into your checking account for the sake of simplicity, but that’s not always the best idea. That’s because:
- Someone could rob you: This isn’t super likely, but it does happen. If someone steals your debit card and you have thousands of dollars in your checking account, they can clean it out. That’s why you shouldn’t keep all of your money in checking. Related: make sure your bank includes fraud protection on all debit cards.
- Checking accounts don’t have great interest rates: Checking accounts aren’t designed to hold a ton of money, and that’s why banks don’t offer great interest rates on them. You’ll get a better return on your savings when you put them in an actual savings account.
After saving two months’ worth of expenses, route your extra funds elsewhere. That might mean:
- Paying down your debt.
- Investing in a retirement plan.
- Pumping the funds into a savings account.
- Buying index funds or other investments.
5 – Check your budget regularly
Personal finance isn’t a one-and-done kind of thing. Your financial situation can change in the blink of an eye, so stay vigilant. Look at your checking account at least once a week to make sure all bills are posting correctly.
You should also check for fraudulent behavior so you can report it ASAP.
By checking your accounts regularly, you can make sure your checking account always has enough (but not too much!) money in it to cover your costs of living.
The bottom line
It’s definitely a good idea to keep a little extra cash in your checking account, but you don’t want too much or too little in your account. By checking your bank’s requirements, tracking your monthly expenses, saving two months’ worth of expenses, securing extra funds, and regularly checking your financial health, you can maintain an optimal checking account balance every month.
Empower yourself: see what your account balance is now and craft solid next steps to keep the right amount of funds in your checking account.
Contributor’s opinions are their own. Always do your own due diligence before investing.
