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The more cash in your checking account, the better, right? Not necessarily.
Money in a checking account is easy to access, and keeping balances above the bare minimum can help you avoid monthly maintenance fees. But having a bloated checking account means you're missing out on higher returns in a savings or retirement account.
In your checking account, it’s ideal to keep one to two months’ worth of living expenses plus a 30% buffer. Why the buffer? Banks earn billions of dollars from fees charged to customers who overdraw on their account or bounce a check. And running afoul of minimum balance requirements could mean being charged a monthly fee by your bank — so it’s best to have a cushion.
For savings, three to six months’ worth of living expenses in your emergency savings fund is a good goal to aim for. The right number for you might be higher or lower than for someone else. It's all about finding out what works for your budget. Here’s a quick look at how much cash to keep in your checking and savings accounts.
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Track your monthly spending
To figure out what your monthly expenses are, keep a daily spending log for one month. Include credit card purchases and payments that are automatically deducted from your checking account, like gym membership fees or loan payments. Use this base number to calculate how much you’ll need to keep in your checking account and how much savings you’ll need for your emergency fund.
» Looking for guidance? Learn what a rainy day fund is and why you need one
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Put additional cash in a high-yield account
Once you’ve arrived at how much you’ll keep in your checking account, direct anything extra someplace where it can earn interest. Online-only banks tend to offer the best rates on savings, including annual percentage yields of 5% or more. That is significantly higher than the national average of 0.46% — which means it'll put more money in your account, no matter how much you contribute. You can read more about some of NerdWallet's favorite high-yield savings accounts.
Once your savings account holds about three to six months' worth of living expenses, consider opening an additional retirement account or increasing your contributions to existing retirement funds. Those include 401(k)s and individual retirement accounts.
Keeping the right amount of cash in your checking and savings accounts ensures that you’re able to cover your daily needs and emergencies, avoid unnecessary bank fees and grow your long-term savings. Again, it's about finding what's right for you, not having the average checking account balance.
» Is inflation impacting your finances? Learn how to save more when inflation makes your money count less
Frequently asked questions
Is it better to keep money in checking or savings?
It’s advisable to have both types of bank accounts. You can:
Use a checking account for spending and paying off expenses, and
Use a savings account to build and hold your emergency fund while earning interest.
How much is too much cash in savings?
An amount exceeding $250,000 could be considered too much cash to have in a savings account. That’s because $250,000 is the limit for standard deposit insurance coverage per depositor, per FDIC-insured bank, per ownership category. If you keep more than $250,000 in your savings account, any money over that amount won’t be covered in the event that the bank fails. The amount in excess of $250,000 could be lost.
The recommended amount of cash to keep in savings for emergencies is three to six months’ worth of living expenses. If you have funds you won’t need within the next five years, you may want to consider moving it out of savings and investing it.
How much money do experts recommend keeping in your checking account?
It’s a good idea to keep one to two months’ worth of living expenses plus a 30% buffer in your checking account.
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FAQs
Aim for about one to two months' worth of living expenses in checking, plus a 30% buffer, and another three to six months' worth in savings. Alice Holbrook edits homebuying content at NerdWallet.
How much should you keep in checking account vs savings account? ›
After allocating one to two months of your expenses into a checking account, Anderson says that the two to four months of additional reserves should be put into a savings account — specifically a high-yield savings account.
How much cash should I keep in my savings account? ›
Most financial experts suggest you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000. Personal finance guru Suze Orman advises an eight-month emergency fund because that's about how long it takes the average person to find a job.
Is $20,000 a good amount of savings? ›
Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you'll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.
How much money should I keep in my current account? ›
However, it's always best to have a little bit spare each month, just in case. As a guideline, workers should aim for at least three to six months' worth of expenses in their account, while retirees should keep around one to three years' worth.
What is the 50 30 20 rule? ›
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
How much does the average person keep in their checking account? ›
Average household checking account balance by age
| Age range of reference person | Average checking account balance in 2022 | Median checking account balance in 2022 |
|---|
| Under 35 | $7,355.53 | $1,600.00 |
| 35 to 44 | $15,309.92 | $2,500.00 |
| 45 to 54 | $20,155.22 | $3,400.00 |
| 55 to 64 | $17,515.35 | $3,500.00 |
2 more rowsOct 18, 2023
While it's perfectly OK to keep some cash at home, storing a large amount of funds in your house has two significant disadvantages: The money can be lost or stolen. Hiding cash under the mattress, behind a picture frame or anywhere in your house always carries the risk of it being misplaced, damaged or stolen.
How much cash does the average person have in savings? ›
In terms of savings accounts specifically, you'll likely find different estimates from different sources. The average American has $65,100 in savings — excluding retirement assets — according to Northwestern Mutual's 2023 Planning & Progress Study. That's a 5% increase over the $62,000 reported in 2022.
How much cash can you keep at home legally in the US? ›
While it is legal to keep as much as money as you want at home, the standard limit for cash that is covered under a standard home insurance policy is $200, according to the American Property Casualty Insurance Association.
Other answers revealed that 15 percent had between $1,000 to $5,000, 10 percent with savings of $5,000 to $10,000, 13 percent boasted $10,000 to $20,000 of cash in their bank accounts while 20 percent had more than $20,000.
What percent of Americans have 20K in savings? ›
Most Americans have $5,000 or less in savings
| Savings account balance | Percentage of respondents |
|---|
| $500 to $1,000 | 8% |
| $1,001 to $5,000 | 22% |
| $5,001 to $10,000 | 8% |
| $10,000 to $20,000 | 7% |
3 more rowsOct 18, 2023
According to the Ramsey Solutions post, the recommendation is to invest 15% of your household income for retirement. The article uses the example of a household income which is $80,000 annually. Based on these earnings, each year you need to invest $12,000 towards your retirement savings.
Is it okay to keep all your money in a checking account? ›
Unless your bank requires a minimum balance, you don't need to worry about certain thresholds. On the other hand, if you are prone to overdraft fees, then add a little cushion for yourself. Even with a cushion, Cole recommends keeping no more than two months of living expenses in your checking account.
How much is too much cash in savings? ›
So, regardless of any other factors, you generally shouldn't keep more than $250,000 in any insured deposit account. After all, if you have money in the account that's over this limit, it's typically uninsured. Take advantage of what a high-yield savings account can offer you now.
How much cash should I have on hand at home? ›
“We would recommend between $100 to $300 of cash in your wallet, but also having a reserve of $1,000 or so in a safe at home,” Anderson says. Depending on your spending habits, a couple hundred dollars may be more than enough for your daily expenses or not enough.
Should I keep more than 250000 in a savings account? ›
The FDIC insures up to $250,000 per account holder, insured bank and ownership category in the event of bank failure. If you have more than $250,000 in the bank, or you're approaching that amount, you may want to structure your accounts to make sure your funds are covered.
How much should a 30 year old have saved? ›
Fidelity suggests 1x your income
So the average 30-year-old should have $50,000 to $60,000 saved by Fidelity's standards. Assuming that your income stays at $50,000 over time, here are financial milestones by decade. These goals aren't set in stone. Other financial planners suggest slightly different targets.
How much money should I have saved by 40? ›
As a general rule of thumb, you'll want to have saved three to eight times your annual salary, depending on your age: 40: At least three times your salary. 45: Around four times your salary. 50: Six times your salary.
How much money should I have in my savings account at 25? ›
By the time you're 25, you probably have accrued at least a few years in the workforce, so you may be starting to think seriously about saving money. But saving might still be a challenge if you're earning an entry-level salary or you have significant student loan debt. By age 25, you should have saved about $20,000.
