How much should you keep in a checking account? Finding the sweet spot for your balance

Finding the sweet spot for your checking account balance is an important part of your financial well-being, particularly as you approach or enter retirement. While you need enough funds to cover daily expenses and certain emergencies, keeping too much in checking could mean missing out on growing your money elsewhere. It's a bit like Goldilocks — not too little, not too much, but an ideal balance.

Learn how to balance what to keep in your checking account, including factors to weigh against your personal circumstances and the risks of oversaving, to keep your money working as hard as you do.

How much should I keep in a checking account?

When it comes to your checking account balance, there's no one-size-fits-all solution. However, a financial rule of thumb is to keep at least one to two months' worth of expenses readily available in a checking account with a traditional or online bank.

But it’s only a guideline, and you’ll want to adjust it based on your personal circumstances. Factors that could affect how much to keep in your checking account include:

• Income frequency. If you receive regular, predictable income — such as Social Security benefits, pension payments or paychecks — you may be able to maintain a lower balance than someone with irregular income.

• Overdraft protection. While it's best to avoid overdrafts by keeping a tab on your finances, maintaining a slightly higher balance can provide a buffer against unexpected expenses, like a peak summer or winter utility bill.

• Minimum balance requirements. While many banks no longer impose minimum balance requirements on everyday checking, some premium accounts — like Bank of America Preferred Rewards — come with hefty minimum balance requirements of $20,000 or more.

You should also save up a separate emergency fund that can cover at least six to 12 months’ worth of living expenses should you temporarily lose your job or face a major financial obligation. You won’t want to store this money in checking, however, because savings isn’t intended to cover everyday expenses.

Instead, it’s best to keep your emergency fund in a high-yield savings account (HYSA), where you can earn yields of 4.00% to 5.00% APY or higher on your deposit — more than 10 times the national savings average. This approach lets you maximize your savings while still maintaining liquidity to cover unexpected expenses. If you need funds, you can easily transfer money from your HYSA to your checking or another everyday account.

Dig deeper: How much should you keep in a high-yield savings account?

How much is too much to save in a checking account?

While maintaining a healthy checking balance is important, keeping too much money in this type of account comes with drawbacks that include:

1. Lost earning potential. Checking accounts typically offer very low interest — or no interest at all. By parking excess money in checking, you're missing out on higher yields paid out on products designed for longer-term savings, like HYSAs, certificates of deposit (CDs) or even higher-yield investments.

2. Opportunity cost. Extra funds that could be used to pay down high-interest debt or invest for the future can’t be used if they’re idling in a checking account. The interest saved by reducing debt often far exceeds what you could earn in even the best checking or savings accounts.

3. Inflation risk. Over time, inflation can erode the purchasing power of money sitting in a low-interest checking account. The more money you deposit there, the greater the risk of missing out on opportunities to build your wealth.

The national average interest rate for interest-earning checking accounts is just 0.08% APY, according to the FDIC. Compare that to the current inflation rate of 3%, and you'll quickly realize how rapidly money in a checking account can lose its purchasing power.

Dig deeper: What is high-yield checking? How to earn interest and rewards on your everyday money

Can I earn interest on my checking account — and how much?

Yes, you can find banks and financial institutions that offer interest on checking, but APYs can vary a lot depending on who you go with:

• Traditional brick-and-mortar banks tend to offer low interest rates of 0.01% to 0.10% APY, if they pay out interest at all.

• Online banks offer higher rates, passing along overhead savings in the form of APYs of 0.50% to 2.00% APY or more.

• Nonbanks and fintech companies offer FDIC-insured high-yield checking accounts with rates as high as 3.00% APY. For example, Axos Bank Rewards Checking pays out 3.30% APY with direct deposits of $1,500 a month.

????Expert tip: How to make sure your account is FDIC-insured

While online fintechs, investment apps and exchanges advertise high APYs, they may also lack FDIC or NCUA insurance, leaving your deposits unprotected if they fail. In the wake of the Synapse collapse — a middleman fintech that connected customers to nonbanks without FDIC insurance — it’s ever more important to double-check that your account is protected. Read our guide on confirming your bank is FDIC-insured — including a step-by-step and what to watch for with nonbanks.

6 simple ways to avoid oversaving in a checking account

By incorporating simple habits and tools into your savings strategy, you can find the ideal amount to put in your checking account:

1. Monitor your accounts regularly. Use your bank’s online tools or mobile apps to keep a close eye on your balance and transactions. Regular use can help you identify patterns in your income and spending to better predict your cash flow needs.

2. Automate transfers to high-yield savings. Set up automatic transfers to move excess funds into a high-yield savings account or other investment accounts. Some banks offer a "sweep" feature, which automatically sends money above a set threshold to your preferred savings account.

3. Become a smart budgeter. Budgeting is a time-tested way to gain control over your finances and determine the right amounts to keep in your checking, savings and investment account. Build a new habit out of the five top budgeting methods that many people swear by.

4. Manage your money with an app. Take your budgeting to the next level with modern personal finance apps that can help you track your income, expenses and investments while setting goals and suggesting improvements. Start with our roundup of the best budgeting apps of 2024, including free and trial options you can test for yourself.

5. Set up account alerts. Most banks allow you to set up alerts that text you when you're approaching a low balance or nearing overdraft. It’s also a good idea to set up transaction alerts for large purchases or unusual activity to prevent fraud or insufficient funds.

6. Review and adjust regularly. As your financial situation changes, so should your checking account strategy. This might mean increasing your buffer as expenses rise — or decreasing it if your income becomes more regular.

Where to park and manage your excess money

After you've figured out the ideal amount to keep in your checking account, explore these options as places for earning high rates of return on your excess cash.

• High-yield savings accounts. HYSAs offer stronger interest rates than traditional savings while allowing flexible access to your cash. You can find many high-yield accounts paying out more than 5.00% APY, helping you to keep pace with inflation.

• Certificates of deposit. CDs offer guaranteed fixed rates of return in exchange for leaving your money untouched for a set term of your choosing. Many of today’s best CDs earn up to 5.00% APY with no minimum deposit requirement. And you can choose from many different CD types.

• Money market accounts. MMAs often provide higher interest rates than savings accounts, with most offering check-writing privileges. The best money market accounts pay out 4.50% to over 5.00% APY currently,

• Investment accounts. Build a diversified portfolio with any number of brokerage platforms that allow you to tailor your investments to your age, risk tolerance and financial goals. A portfolio might include stocks, mutual and index funds, exchange traded funds (ETFs), money market funds and more.

• Roth IRAs. Contributions to a Roth IRA provide tax-free growth potential for your excess funds, since they’re funded with after-tax dollars. Contribution limits for 2024 are $7,000 for those under 50 and $8,000 for those ages 50 and older.

If you’re planning for retirement – or already enjoying your golden years — a financial advisor can be a good investment in your future. Learn how to find a trusted retirement advisor for peace of mind and to maximize your savings.

FAQ: Checking accounts and managing your excess money

Learn more about how to balance your everyday expenses against longer-term savings goals.

Do checking accounts come with FDIC insurance, like a savings account?

Yes. The standard FDIC insurance coverage for a checking account is $250,000 per depositor, per insured bank, for each account ownership category. Ownership categories include individual accounts, joint accounts and certain retirement accounts, among others. If you keep a lot of money with one bank, learn how to make sure your deposits above $250,000 are insured.

Can I negotiate checking account fees with my bank?

Yes, many banks are willing to waive or reduce fees, especially for long-standing customers or those who maintain higher balances. It’s worth calling your bank or financial institution to ask about ways to save money on fees.

Which is a better way to save on my idle cash: a high-yield account or a CD?

HYSAs and certificates of deposit both offer interest rates that are more than 10 times the 0.45% APY national savings average reported by the FDIC, yet while HYSAs allow for flexible access to your money, CDs tend to attract higher rates of returns, among a few other key differences. See our guide to comparing high-yield savings accounts and CDs to find the best for your budget and financial goals.

Editorial disclaimer: Information on this page is for educational purposes and not investment advice or a recommendation to buy any specific asset or adopt any particular investment strategy. Independently research products and strategies before making any investment decision.

Sources

• National Rates and Rate Caps, FDIC. Accessed August 2, 2024.

About the writer

Kat Aoki is a seasoned finance writer who's written thousands of articles to empower people to better understand technology, fintech, banking, lending and investments. Her expertise has been featured on sites like Forbes Advisor, Lifewire and Finder, with bylines at top technology brands in the U.S. and Australia. Kat strives to empower consumers and business owners to make informed decisions and choose the right financial products for their needs.