How Much Money Should I Keep in My Checking Account?

There’s lots of talk in the world of personal finance about how to best manage a savings account. You might read up on financial experts who recommend keeping three to six months’ worth of living expenses in your savings account, or maybe you’ve seen a tip about socking away enough money to cover larger expenses. Either way, there’s lots of discussion about the ideal amount of money to keep in a savings account.

But what about our checking accounts? Most of us use these accounts daily. With every swipe of a debit card to nearly every bill we pay, money is taken out of our checking account every day.

How much money should we be keeping in these super convenient, everyday accounts? Let’s find out.

What's your magic number?

According to a 2019 NerdWallet survey, the average American checking account balance is approximately $2,900, but this number may not be right for you.

Everyone’s financial realities are different, but here’s a general rule of thumb: try to have one or two months’ worth of living expenses in your checking account at all times. Some experts recommend adding 30 percent to this number for some extra cushion.

To determine your exact living expenses, track your spending over several months, including all bills and discretionary spending. Be sure to include seasonal and occasional expenses as well. Why keep that much money in your checking account?

Your checking account is your transactional account. This is where you’ll draw the money for all of your spending throughout the month, so you’ll want to be sure you have enough funds to cover those expenses. But it goes deeper than that. Here are three reasons you want to keep your checking account well-padded at all times:

1. Avoiding overdrafts
   Even high-income earners can miscalculate their spending and end up with an overdrawn account. Why risk being charged overdraft fees for every transaction when you can easily avoid this mistake?
2. Providing a cushion for pre-authorization holds
   Some merchants, including those that operate gas stations, hotels, and car rentals, will place a pre-authorization hold on your debit card until you complete a transaction. Pre-authorizations can reduce your available checking account balance by up to $100 per hold. Once your transaction clears, the hold is released, and the funds are available to you again. However, until then, the money is tied up. Keeping your checking account well-funded allows you to comfortably agree to pre-authorization holds without fearing an empty or overdrawn account.
3. Keeping liquid funds available
   A robust checking account means access to cash is just an ATM transaction away. While most vendors accept various forms of payment, it’s helpful to know you have cash available if you need it.

While it’s great to keep your checking account well-padded, taking it to the extreme is not recommended. Having an overstuffed checking account means you’re possibly missing out on the higher returns you can earn if you were to keep those same funds in a TAPCO Money Market Account or in a Savings Certificate.

Once you’ve determined exactly how much money you should be keeping in your checking account, look into other options for the rest of your funds. You can speak to a Member Service Representative at TAPCO to learn about our available options and other high-yield options to find the one that’s right for you.