Checking accounts are used to receive funds, store cash safely, and make payments to businesses and one another. In 2022, the average personal checking account held $2,800.[1]

Whether this number seems too high or too low greatly depends on the goals a consumer sets for their money.

Is your balance sufficient for your ongoing financial needs? Read on to understand how much money you should keep in your checking account.

Determining Your Ideal Checking Account Balance

While goals vary from person to person, these three factors help determine where to start.

Income Stability

Income stability represents how likely a person is to continue receiving the same income month after month. For example, a long-time, regular employee of a healthy company has more income stability than a beginner freelancer with no established clients.

Those with lower income stability may want to put more into checking to help cover expenses during those likely moments of decreased income. On the other hand, those who regularly receive a predictable income might get by with a little less.

Monthly Expenses and Budget Needs

Ideally, the amount put into your checking account each month should cover what it takes to live comfortably. How is this determined? To start, look at the monthly budget.

Add up all of your monthly expenses required to live each month. This typically includes housing, loan payments, groceries, transportation, utilities, health care, insurance, and child care —and there could be more. If bills vary from month to month, look at the highest months' expenses and use those as the guideline.  

Include discretionary expenses that may not be required but come up repeatedly each month. To get a better idea of this amount, look at the last few months of spending. Note each dinner out, gift for a friend, streaming subscription service, or new clothing purchase you made. 

 Then, add the two types of spending together to get the total expenses to cover each month.

Assuming these expenses are less than the amount of income earned each month, this amount can be deposited as a starting point. Aim to keep at least that much in the checking account. In the months when expenses aren't as high, any extra money can be used toward a savings goal or to meet other obligations.

Financing Goals and Safety Nets

In addition to the money needed to get by each month, an additional amount may be needed to ensure financial security. However, it may be best to put that into another deposit account, such as a savings account. That way, when there's a need for more money in the checking account, it can be transferred over. Look for banks that connect checking and savings accounts for easy movement of funds.

What extra items might be included in this safety net?

  • Unexpected medical expenses
  • Home or car repair bills
  • Money for an unexpected travel opportunity

Short- and long-term goals may also be included. Saving for a down payment on a home or paying for an upcoming wedding gift are two examples of items that fall outside the normal monthly budget. These can be funded with cash in a savings account but paid out from your checking account.

Risks of Not Having Enough Money in Your Checking Account

Without a healthy minimum balance in the account, there's a real danger of falling below a $0 balance, especially for those who overspend or don't keep good financial records. 

Banks consider a negative balance an overdraft, and they may charge fees when this happens. Enough overdrafts can also lead a bank to deny future charges from being processed. This can be bad news if there’s a bill scheduled to come out of that account. For example, if your car loan can’t be paid due to a zero-account balance, the issuer could even charge a returned payment fee.

How to Avoid Additional Fees

At a bare minimum, there should be enough money kept in a checking account to meet any minimum requirements set by the bank, if applicable. Some checking accounts, especially those that pay interest or bonuses, require the customer to keep a minimum balance to avoid monthly fees. This number could be $50, $500, or even $5,000 and will vary by bank account.

Risks of Keeping Too Much Money in Your Checking Account

The flip side of not having enough money is stashing too much cash. Yes, it's possible to put more into a checking account than what’s advisable for the situation. Again, this is a very personal formula that varies by person, but you want to avoid an excessive checking account balance.

The Trade-Off Between Accessibility and Interest

Checking accounts don’t typically pay much interest to accountholders, if at all. Because of this, keeping more money than needed in a checking account may not make sense. Instead, those excess funds could be put into a savings account with a higher annual percentage yield (APY). Instead of earning little or no interest in a checking account, you are better served placing those funds in accounts earning compound interest at higher rates.

Keep in mind that banking services with the best interest rates may also restrict access to your money. For example, a certificate of deposit (CD) locks money away where it can’t be used until it matures. Figuring out the right blend of accessibility and earnings may require the help of a financial professional.

Balancing Checking and Savings

It makes sense for consumers to have both a savings and checking account, knowing how to use each to best manage spending and savings. In addition to following the budget plan to allocate cash, it's helpful to understand how each works.  

Benefits of Having Both a Checking and Savings Account

Each type of account offers a specific set of advantages. For example, checking accounts generally pay less interest (if any) but allow consumers unlimited deposits and withdrawals throughout the month. ATM access is an additional perk, as well.

Meanwhile, a savings account may limit the number of withdrawals a customer can make each month and charge fees for any withdrawals beyond that number. However, savings accounts were designed to provide higher interest rates, helping account owners meet those savings goals.

Customers with both accounts can set up a system for how and when to transfer money between them. One common practice is overdraft protection. When the accounts are linked, the savings account automatically funds any overdrafts on the checking account and eliminates expensive overdraft fees altogether. 

However, note that some banks charge a fee to transfer from savings to checking when checking is overdrawn. See your account terms for additional details.

How Much to Keep in Checking vs. Savings

Knowing the right balance depends on how you use money each month. If you rarely have overdrafts and keep a substantial cushion in your checking, you may want to consider putting most excess funds each month into savings. 

On the other hand, if you face widely varying monthly expenses or income, it may prove a good idea to maintain a larger checking account balance to cover unexpected changes. Keeping more in checking versus savings can eliminate stress and ensure that money is always available when needed.

What to Do with Excess Funds

What happens when the checking account is fully funded, and there is money left over? Consider these alternatives.

Exploring High-Yield Savings Accounts

High-interest savings accounts, also known as high-yield savings, stand out in the market. These offer the best savings account services with a higher APY. How much a customer will earn on the account varies by bank and may be impacted by the current market rates set by the Federal Reserve.

High-yield savings accounts may have minimum account balance requirements or require a larger initial deposit to open the account. For those who can’t decide between checking and savings, this type of account may be worth exploring.

Investing in Money Market Accounts or CDs

Money market accounts are another alternative, with some offering debit cards and check-writing services while paying out a higher APY. Meanwhile, CDs may be a better option for consumers who want to stash cash for later and don't need the ability to spend it for a while. CDs are available in various term lengths. Upon maturing, owners can access the full amount, including accrued interest. It's important to fully understand the terms and conditions of these account options before opening a new account.

The Right Amount of Money to Keep in a Checking Account

Knowing how much to fund a checking account depends on several factors, such as understanding your current financial situation and future goals. You may want to discuss your ideal monthly balance with a financial advisor.

Fortunately, checking accounts are made to be flexible. When financial goals change, the balance in a checking account can change, too.

Learn more about the benefits of opening a checking account.