Keeping all of your money in your checking account may seem more convenient than spreading it out across multiple accounts and, while this can simplify things, there are a few reasons why it may not be the best idea.

One main reason is that your checking interest rate will likely be lower than the APY you could earn with a savings account. Mixing funds meant for spending and saving can also make it more challenging to save money.

Let’s examine how much money you should keep in your checking account and why you should typically transfer extra money to savings or investments.

How much should you keep in your checking account?

Checking accounts are primarily meant for spending, which is why they’re sometimes referred to as transaction accounts. Unlike many savings accounts, checking accounts don’t limit the number of transactions, and you often can use a debit card or checkbook to spend the money instantaneously.

Because the funds are so easy to access, you typically shouldn’t hold more in your checking account than you might spend. According to Andrew Latham, certified financial planner and director of content at SuperMoney, you should keep just enough in the account to cover regular bills and expenses.

“It’s also smart to keep a small cushion for any unexpected or variable expenses, like an unexpected repair or medical co-pay,” said Latham. “It varies depending on your income, but for most households, maybe $500 to $1,000 would be enough to have extra.”

Here’s how you can calculate your monthly expenses so you can figure out the base amount to keep in your checking account:

Gather financial documents: Look at your past bills and account statements to find your regular expenditures.

List your fixed expenses: Write down all of your expenses that stay the same each month, such as your rent or mortgage, insurance or phone bill.

Track your variable expenses: For expenses that change each month, such as groceries, utilities and discretionary spending, look at past financial statements to calculate the average cost.

Once you know the balance you need to cover your monthly bills (along with a small buffer for any surprise expenses), you can transfer anything above that amount to a savings account or investments.

Why you shouldn’t keep all of your money in your checking account

Although finding a checking account with a decent APY is possible, you’ll usually receive a better rate with a savings account or investments.

If your checking account pays a low interest rate (or none at all), there’s a risk that inflation will outpace your returns. That means your money could actually be worth less as time goes on, whereas, with a savings account, it’s more likely to earn a rate that will keep up with inflation.

Along with earning a better rate, a savings account allows a natural separation between the money you want to save and the money you can spend. When you combine all those funds in your checking account, it can be a lot easier to spend the money you intend to hold on to.

Where should you put your extra money?

High-yield savings account (HYSA): A high-yield savings account will typically earn a better rate than a regular savings account. You can often find them at the best online banks, but they may require a minimum balance to avoid a monthly fee.

Certificate of deposit (CD): Although CDs can be an excellent way to lock in a high rate and earn a better return, there are often penalties for withdrawing before maturity.

Money market account (MMA): Money market accounts tend to pay competitive rates while allowing you to write checks and make debit card transactions from the funds. However, they often limit the amount of transactions you can make each month.

Stocks: The stock market has historically seen 10% in annual returns, but it does come with more risk. Mutual funds and ETFs can help you diversify your investments and spread out your risk.

What is the average checking account balance?

When deciding how much money to keep in your checking account, looking at the average checking balances of other Americans may be helpful.

J.P. Morgan Chase, the largest commercial bank in the U.S., conducted a survey measuring the change in weekly checking account balances by income quartile.

The survey found that people in the second quartile, earning between $26,171 and $40,826 annually, held a median checking balance of around $1,750 at the end of 2021. People in the third income quartile, earning between $40,826 and $64,974, had a median checking balance of just under $3,000.

Should you keep your emergency fund in a checking account?

It’s typically not a good idea to keep your emergency fund in a checking account since you could miss out on a higher APY. However, one possible exception is if you find a checking account with a competitive interest rate.

“I like using high-yield checking accounts, but they can be a pain if you have to meet certain requirements, like using the debit card a certain amount of times a month or having a minimum [balance],” Latham said.

“But if you do have access to a high-yield checking account, then it can be a good place to keep your emergency fund because it’s all in one place, less hassle and you can get similar rates to high-yield saving accounts.”

However, keeping all of your money in one place may make it more challenging to save.

“If it means that you’re more likely to spend money that you wouldn’t otherwise because it’s so easily accessible in the same checking account, then it might make sense to add a little bit of friction and deposit the emergency fund in a savings account … ”

Is it safe to keep money in a checking account?

While it may not always be advisable to keep a lot of money in your checking account, it’s generally safe to do so.

If the financial institution is FDIC or NCUA insured, your funds are safe up to $250,000 per depositor. That means if the bank or credit union experiences a bank run or failure, your money is federally backed.

However, since your debit card allows easy access to your funds, your money could be at risk if anyone were to get their hands on your card or account numbers. Using a separate account to stash extra money away adds an additional layer of security.

Do checking accounts pay interest?

Some financial institutions, particularly online banks, offer checking accounts that accrue interest.

The national average for interest checking is 0.08%. However, some of the best high-yield checking accounts can offer around 3.00% to 5.00% APY.

You may have to meet specific criteria to earn the top rate, though. For example, your institution may require a minimum balance or a certain number of monthly debit card transactions in your account.

Bottom line

You’ll often find that the best high-yield savings accounts pay better interest rates than most checking accounts. That means if you keep too much in a checking account, you may miss out on precious returns and compounding growth.

Although you may find a comparable rate with a high-yield checking account, having all your money in one place may promote overspending and make it harder to save.

Usually, the sweet spot is keeping enough in your checking account to cover any monthly bills and a little extra in case unexpected expenses come up.

Editorial Disclaimer: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airlines, hotel chain, or other commercial entity and have not been reviewed, approved or otherwise endorsed by any of such entities.

This content is for educational purposes only and is not intended and should not be understood to constitute financial, investment, insurance or legal advice. All individuals are encouraged to seek advice from a qualified financial professional before making any financial, insurance or investment decisions.

Note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed or may no longer be available.

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How much money you should keep in your checking account?