Financial Experts Weigh In: How Much Should You Keep in Checking?

The amount of money you should keep in your checking account depends on your individual circumstances. While the median household checking account balance is $2,800, a better approach is to focus on your monthly expenses. Experts recommend keeping one to two months' worth of living expenses in your checking account to cover bills and regular costs. This will help you avoid overdraft fees and keep you financially prepared for unexpected events.

How Much?

Experts recommend keeping one to two months' worth of your regular expenses in your checking account. This amount acts as a buffer to prevent overdrafts and unexpected negative balances.

For instance, if your monthly bills total $5,000, you'd ideally have $5,000 to $10,000 sitting in your checking account at all times.

Why is this important? Overdraft fees can be costly and inconvenient. Having a buffer ensures you have enough funds to cover automatic bill payments and everyday purchases made with your debit card, without accidentally dipping into the negative territory.

The goal is to maintain a balance that allows you to comfortably pay bills and manage your daily living expenses without worrying about overdrafts.

Read also:Car Affordability Crisis Leaves Many Americans Stranded

Grow Your Money

Keeping a safety net in your checking account is crucial, but what about extra cash beyond that? Checking accounts typically offer low interest rates, meaning your money stagnates and loses purchasing power due to inflation. Here are some better options for your extra cash:

1. High-yield Savings Account (HYSA): Once your checking account comfortably covers your bills, an HYSA is a great next step. HYSAs offer significantly higher interest rates than traditional savings accounts, currently reaching up to 5% APY or more. This allows your money to grow steadily while remaining easily accessible for emergencies like car repairs, medical expenses, or unexpected job loss.
2. Certificate of Deposit (CD): If you have a specific savings goal in mind, a CD might be a good fit. CDs offer competitive interest rates, often comparable or exceeding HYSAs. They work best for planned future expenses like a wedding, vacation, or down payment. In exchange for a guaranteed higher interest rate, you commit to keeping your money locked away for a fixed term (ranging from months to years). Early withdrawal typically comes with a penalty, unless you choose a no-penalty CD, which generally offers lower interest rates.
3. Money Market Account (MMA): A money market account (MMA) offers a unique blend of features from both checking and savings accounts. It functions like a savings account where you deposit money and earn interest, potentially at rates comparable to high-yield savings accounts. However, unlike traditional savings accounts, MMAs often come with check-writing privileges and a debit card, allowing you to access your funds like you would with a checking account.

Related article:Credit Score Danger Zone! Rising Missed Payments Threaten Your Borrowing Power

The content provided on MoneyTimes.com is for informational purposes only and is not intended as financial advice. Please consult with a professional financial advisor before making any investment decisions.