How much money should I have in my checking account? #CashNews.co

Your checking account is a hub for your everyday financial management. Debt payments, savings and investment contributions, and recurring expenses all often come from that single account.

As a result, you may be wondering, how much money should I have in my checking account? If you have too little, you could be subject to overdraft and non-sufficient funds fees, and if you have too much, you could miss out on interest you could be earning in a savings account.

But because every household’s finances are different, there’s no clear-cut threshold you should meet. As such, it’s important to understand your financial situation, needs, and goals to determine the right amount for you.

Understanding the purpose of a checking account

For most Americans, a checking account is where they receive their paychecks and manage their expenses. Even if you have credit cards, an emergency fund, and other financial accounts, payments and contributions typically come from your primary checking account hub.

Checking accounts come with various features, including a debit card, which you can use to make purchases and withdraw money from an ATM, an access card specifically for ATM withdrawals, and paper checks. You can typically deposit, transfer, and withdraw money with no limitations beyond your balance.

That said, most checking accounts don’t offer interest, so if you leave too much money in it, you could benefit from moving some of the funds to a savings account or another account that can give you more value.

On the other hand, spending or transferring more than you have in the account could result in overdraft or non-sufficient funds charges, which can be punitive.

Factors to consider when deciding how much money to keep in a checking account

If you want to make the most of your money without risking overdrafts, you may want to leave just enough cash in your checking account to meet your everyday financial needs. However, there are some other factors to consider when determining the right amount to maintain.

• Monthly and other recurring expenses: At a minimum, you’ll want to ensure you keep enough money to cover your monthly expenses, including debt payments and savings contributions. You may also want to leave a buffer for other recurring expenses that don’t occur monthly, such as auto insurance premiums or annual membership fees.

• Income stability: If your income fluctuates every month, it may make sense to maintain a higher balance in your checking account to ensure that it doesn’t go dangerously low during lower-income months. However, if your income is stable, you won’t need to consider this factor.

• Bank minimums: Some banks require you to maintain a minimum balance to avoid a monthly service fee. If there are no other ways to waive the fee, ensure you maintain that minimum balance to avoid a charge.

• Overdraft protection: Overdraft coverage can vary by financial institution, including fees and how much you can overdraw your account. For example, some banks and credit unions may charge you a flat fee, while others may pull money from a linked savings account or utilize a line of credit to cover your overdrafts. If overdraft protection is relatively inexpensive or even free, you may not need to worry as much. But if it’s costly, you may want enough money to cover unexpected expenses.

• General preferences: You can also consider your general financial goals and how you want to manage your money. While savings accounts can offer interest on your balance and can help you track individual savings goals, you may prefer to use just one account to manage everything.

Recommended minimum and maximum balances for a checking account

Ultimately, the amount you keep in your checking account is up to you. Traditional banks may require you to keep at least a few hundred dollars in your account to avoid a monthly service fee — some banks may require upwards of $1,000.

That said, many online banks and credit unions don’t require a minimum balance, so you’ll want to base your minimum on other factors. Check your account’s deposit agreement to understand the fees or interest you may be charged for overdrawing an account.

There’s generally no maximum limit for how much you can keep in a checking account, but keep in mind that the Federal Deposit Insurance Corporation (FDIC) only insures up to $250,000 per bank, per depositor, per account ownership category. If you have more cash than that, consider spreading your funds across multiple checking accounts at different financial institutions.

Tips for managing a checking account balance

Once you’ve determined the right amount to hold in your checking account, managing your balance is important to avoid fees and missed opportunities to earn interest. Here are some steps you can take:

• Track your expenses: Review your online account at least once a week to keep track of your expenses and balance to make sure it doesn’t go too low or high based on your preference.

• Automate your savings: Although it may seem easier to save any leftover funds you have at the end of the month, treat your monthly savings contributions as part of your budget. This approach to savings can help you better manage your checking account balance and also improve your odds of reaching your savings goals.

• Set up alerts for low balances: Consider setting up alerts on your bank’s mobile app to get a warning when your balance reaches a certain threshold.

• Review and adjust your budget regularly: Spending habits change over time and as frequently as month to month. Set monthly spending goals and track your spending to align with your objectives. Additionally, evaluate your budget every few months to ensure it’s still working for you and make adjustments as necessary.

Alternatives to keeping excess funds in a checking account

If you want to maximize the value you get from your money, consider spreading your funds across different accounts with various benefits. In particular, here are some other accounts you can use for short- and mid-term financial needs and goals:

• High-yield savings accounts: A high-yield savings account offers a high interest rate on your deposits while also giving you ready access to your funds when you need them. You won’t get a debit card, but you may get an ATM card or the ability to transfer money to your checking account. Keep in mind, though, that savings accounts often limit withdrawals and transfers from the account to six per month. If you exceed that, you may be charged a fee or experience other consequences.

• Money market accounts: High-yield money market accounts act as a hybrid between a checking and high-yield savings account. You can often access your funds with a debit card or paper checks, and you’ll also earn a high interest rate on your balance — sometimes higher than with a savings account. That said, money market accounts may have monthly fees and balance requirements, and withdrawals and transfers are typically subject to the same limitations as with a savings account.

• Certificates of deposit (CDs): CDs often offer high fixed interest rates in exchange for locking up your funds for a certain period of time, which can range anywhere from one month to several years. This option could be worth considering if you don’t need access to your money until the account matures. But if you withdraw money early, you may be subject to a penalty.

Take your time to research all of your options to determine the best options for you and your financial needs and goals.