How Much Money Should You Have In Your Checking Account?

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If you belong to a bank or credit union chances are you have a checking account. Let’s be real, having a checking account is part of basic money management. Checking accounts provide access to cash to pay for everyday transactions. Plus, they typically allow unlimited withdrawals and deposits. This can make it easy to use for daily expenses.

The median checking account balance in the U.S. is $3,400, according to the 2016 Federal Reserve Survey of Consumer Finances. Between paying rent, student loan payments, and the occasional Starbucks, you should make sure your checking account has enough buffer to cover the necessities.

If checking accounts are good vehicles to manage your spending, just how much should you have in it? It’s a question that can be hard to answer as it can depend on how much you make and how much you spend.

Choosing to keep a slim balance versus a sizable one can be tricky. Here’s a list of pros and cons to help you determine how much you should have in your checking account.

How much money do you spend every month?

First things first, you should have a rough idea of how much you spend each month. Your checking account should have enough in it to cover your monthly expenses. A great way to figure that out is to list out fixed and fun expenses that you typically spend money on within the month.

Fixed expenses could include rent, utilities, your cell phone bill, internet, groceries, and any debt payments you make. Fun expenses could include money spent on restaurants, entertainment, shopping, and travel.

If you use a credit card, you can look at past billing statements to get a quick snapshot of how much money you spend within a month. Then, make sure you have at least that much inside of your checking account to cover your credit card payment in full. If you can’t pay it in full, make sure you pick up some simple methods to pay off credit card debt quickly and also reassess what your monthly budget is.

Pros of keeping a small checking account balance

Once you have determined the average cost of your monthly expenses, you might choose to keep a small checking account balance with minimal padding. This can be a benefit because you become better at predicting your monthly expenses so you never have too much or too little in your checking account.

You also have the opportunity to move money into interest-bearing savings accounts. Checking accounts don’t often come with high interest. According to the Federal Deposit Insurance Corporation, interest checking accounts earn a national average of just 0.06%. So you won’t be earning a whole lot of money for keeping a large balance.

Cons of keeping a small checking account balance

On the other hand, if you decide to keep a small checking account balance, you might be more susceptible to overdraft and minimum account balance fees. For instance, you might forget about an expense, like your Amazon Prime membership which is charged annually, and go into the negative. You could be hit with bank fees because you didn’t leave enough cash in your checking account to cover the costs.

Many Americans fall into the overdraft fees trap. More than $34 billion was spent in overdraft fees in 2017. People with low incomes and tight budgets often fall into the overdraft window. And if you’re not prone to looking at your bank account balance regularly, fees can eat up the rest of your meager balance.

You can avoid overdraft fees by signing up for alerts from your bank when your account balance is low. Fun fact: as of 2010, banks are required to obtain your consent and agreement to their overdraft fees. Check your bank’s fee policies to ensure you don’t overdraft if you decide to keep a small checking account balance.

Pros of keeping a large checking account balance

If you choose to keep a large checking account balance, you’ll undoubtedly have enough buffer to cover all of your expenses and then some.

Many one-time expenses, like insurance or annual memberships, can be earmarked inside of your checking account. Plus, life isn’t the same month over month. Vacations will be had and you’re bound to increase your spending around the holidays. A large checking account balance can help you float without experiencing those pesky overdraft fees.

Cons of keeping a large checking account balance

A hefty balance in your checking account doesn’t always benefit you, though. Recall that most checking accounts don’t earn interest and if they do, it’s very little. Idle money isn’t going to help you reach your financial goals, especially when you factor in the rate of inflation. The cost of goods and services continues to go up, and money that doesn’t earn interest won’t be able to keep up.

What if you decide to lump your savings and your daily spending into one checking account? It may feel like you have beaucoup bucks, but in reality, you might be dipping into savings. A large checking account balance that includes savings can be a bad idea. You could accidentally spend money that was meant for emergencies, a new car, or a down payment on a home.

If you want to keep track of money reserved for other goals, like stocking your emergency fund, it’s best to keep it in a high yield savings account.

How much should I have in my checking account?

At the end of the day, everyone has different expenses and income. So, naturally, not all checking account balances hold equal. However, we know from the 2016 Federal Reserve Survey of Consumer Finances that the average checking account balances tend to go up as you age.

Some data on that:

Age Group 2016 Average Balance
Under 35 $4,013
35-44 $9,593
45-54 $10,337
55-64 $11,098
65-74 $15,752
75 and older $15,803

As Uncle Ben once said, “With great power, comes great responsibility.” Which is a millennial way of saying make sure you have enough to cover your expenses as you take on more responsibility in life. Whether you combine forces with your significant other or decide to start a family, your expenses can grow and so should your checking account to cover those expenses. That being said, stockpiling money in your checking account is a bad idea, as that money can be working for you more effectively in a high yield savings account or invested. 

Justine Nelson is the founder of Debt Free Millennials, an online community to help millennials get out of debt. Justine enjoys writing and speaking about all things personal finance. This Midwest millennial paid off $35k in student loan debt and now resides in San Diego with her husband living the DINK life (Dual Income, No Kids).

Feature Illustration: Laura Caseley For The Money Manual