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How Much Money Is In Your Checking Account?

Sometimes I’m fascinated by the simplest personal finance concepts—like the difference between keeping money in your checking account versus a savings account. The way I see it, there are a few different models to divide up your cash between checking and savings. You could keep most of your liquid cash in a checking account to always have access to it, you could keep the money you’ll spend for a month in a checking account plus a cushion of several hundred dollars or so, or you could keep as little money as possible in checking and put the rest into the savings to earn some kind of return on your dough—even though it’s not much these days. Which model do you use?

I fall into the middle category. I try to keep an amount equal to my monthly expenses—plus about a $500 cushion—in checking and put the rest into savings. That way, I don’t have to be worried about overdrawing my checking account, but I’m also not stressed that I have too much money in checking that could be earning interest. I think, however, there are some other benefits to this strategy, too:

For one, transferring extra money into savings as quickly as possible can make you forget you have it. That way, when you evaluate whether or not to buy something, you may only look at your checking account balance and not consider what’s in your savings (the way it should be). Chances are, the less money you have available in checking, the less likely you will be to spend it.

The Danger of Debit Cards

Finally, it’s important to remember that the now ubiquitous debit card puts your checking account at risk. In the event your debit card is stolen and somebody makes fraudulent purchases with your card, those transactions can drain your checking account. Although most debit card fraud victims get their money back when the fraud is reported on time, it can take days, even weeks for the funds to be returned to your checking. So ask yourself: Could you stomach loosing all the money in your checking account for a week? Two weeks?

Transfer funds to a savings account, however, and they will be safe from debit card fraud, with one exception. Some banks let you set up an overdraft feature that will tap your savings account in the event you overdraw your checking account. In that case, they charge you a small fee (maybe $5) rather than the $30 most banks charge for a regular overdraft. Most banks, however, put a cap on the amount they’ll transfer from savings to cover these overdrafts. Mine’s set at $500. If there’s no limit, a debit card thief could really clean you out. It’s another reason to consider keeping savings at a higher-rate and separate online savings account.

How much do you keep in your checking account? Share your strategy. I’d especially be interested to hear if anybody has a reason for keeping a large checking account balance.

About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. Rarely do I have more than $3000 in my checking account. Generally, it’s about $2000 plus a $1000 cushion.

    Since all of my savings/investing/bill paying is automated, the checking account gets used as the central deposit/transfer-from account, with the money moving to where it needs to be.

  2. I keep as little money in my checking as possible, rarely over $500. I always use a credit card, never a debit card. I like getting the points, plus the protection a credit card offers (I always pay my balance in full at the end of the month). Usually, I’ll keep just $500 in my checking account, the rest in savings. I have my both checking savings through ING Direct so transferring money between the two takes less than 5 min. When I’m paying my Visa and Amex bills, I’ll simply transfer the amount needed to cover over to my checking and wait until the payment goes through. Also, ING doesn’t have overdraft fees, they just dip into a line of credit, which, if replenished fast enough, incurs no charge at all.

  3. Kristen says:

    I am a recent graduate, so I don’t have much money to begin with. I have two checking accounts, one for my monthly bills with at least $200 extra. This account has NO debit card attached to it, I can only write checks so that makes it much easier to keep this one apart from my other checking account. The second checking account has my spending money for daily expenses which I have budgeted for. This account DOES have a debit card with it. I find this is the best way for me to make sure I have enough money for necessary bills without the fear of withdrawing. I then have a savings account which the rest of my money goes into. All of my accounts are through one bank with online banking which I frequently check. I also have no credit cards – I’m still deciding about this, but may get an AMEX where I pay off the balance every month – so I don’t tempt myself with an impulse purchase.

  4. Similar to Jason, I have a central deposit/transfer checking account at a brick and
    mortar bank. This is used for all the auto-pay bills, which includes the auto scheduled
    pay-yourself bill that goes directly to savings. Checking has monthly bills + ~$1,000
    and the balance is transfered to savings at the end of the month. When the savings gets
    to a certain level I transfer to either online bank (ING) for emergency/new car/vacation
    accounts, or to Roth IRA (pending what the price is at). This way I normally only “see”
    the checking balance, but the same bank linked savings is there if I need it.
    Transfering a large sum to the other accounts lets me feel a small accomplishment
    of saving “X” dollars for new car/vacation/whatever.

    I think the main goal is find something that works for you, pay yourself first, and not
    spend all of your time stressing over money and “the best” model to follow…go out, live,
    and enjoy life!

  5. I have my checkbook planned 3 months ahead, with all the usual bills already registered. Then I plan how much to transfer to my savings account each month. I leave just enough to pay the bills and a couple hundred for cash. Like you said, I move money to my savings account as much as I can and as soon as I can so I forget about it and don’t spend it!

  6. My monthly paycheck goes directly into checking.
    Every month, I:
    – automatically put 15% in my savings account and transfer $(contribution limit/12) to a Roth IRA.
    – put most purchases/bills on a credit card to earn cash back.
    – have automatically withdrawn things like the mortgage and other bills that can’t go on the credit card.
    – automatically pay off the credit card when it’s due.
    – take anything that is left over at the end of the month and either transfer it to savings, spend it on something I don’t really need, or, most recently, put it into an online brokerage account where I’ll try my hand at speculative investing.

    So, essentially, my checking account is used as central storage for transfer to other places. The balance starts high at the beginning of the month (when I’m paid), and ends the month very low. I suppose I could have an additional buffer, but I watch my account very closely and always know what my balance is, so I’m not too concerned about overdrafting.

  7. After seeing the numbers here, I guess I keep a large amount of money in my checking for my age (29). I try to keep things simple with my accounts, so I only have 3: one checking and 2 savings. The checking and one savings account at one institution actually have the same (paltry) interest rate, so I really only have a savings account because they told me I needed one to open a checking account. The other savings is an ING account, and I keep at least 8 months of expenses there.

    I always kept at least enough for the “worst month’s” expenses plus a $1000 cushion. I am self employed now, so those “worst months” are now estimated tax time and cost me about $9000 more than they used to. Add in an expensive area to live in plus owning a home, and that amount really swells. To me, its not worth the headache of transferring money back and forth just to get an extra percent for a couple months. That may change if ING’s rates go considerably higher in the future. For now, I’d rather have the peace of mind that the money is there when the taxman comes. Especially when I do get at least a little interest in my checking account.

    I have been thinking about getting a second checking account at another institution because of the recent bank failures. Basically I just want to be able to access money until the FDIC or NCUA gets the situation straightened out after a failure. I’m shopping for a good interest rate checking plan to park some money in currently for that reason.

  8. I keep one whole paycheck in my checking at all times and the rest in savings. The other day at the airport, I went to the ATM and somebody had left their receipt hanging at the machine. It was one those ATMs that print your balance on the receipt. I glanced down at it and the balance on the receipt was like over $31,000. That’s a lot of money in a checking account.

  9. I generally have a set amount of money that I try to put in my online savings account every month. Most of the money that I keep in the checking account is usually just enough to allow me to pay my bills throughout the month and have a few hundred for spending throughout the month. I definitely think that moving money into my savings account early one does two things: one it ensures that I save every month, and two, it doesnt tempt me to spend the extra money that is left over after I cover expenses.

  10. I keep all of my liquid funds in my checking account as I have a rewards checking account.

  11. I keep enough in my checking for that month’s expenses plus about $500. The other day I was at a convenience store and someone left their ATM receipt, and their checking account balance was $210,000.

  12. Ana Maloney says:

    How much money should be kept in my checking before I have to claim it on my taxes.

  13. I used to keep a small amount of money in my checking account (about one month of expenses), but always ran into trouble when a large purchase came up. I always ended up withdrawing money from my savings which was difficult. I felt like I was forcing money into savings. Now, I keep three months of expenses in my checking account and put whatever is left over into my savings accounts. This way, I know my savings can actually be saved; I won’t be withdrawing it all. I have two savings account I put the leftover money in. One is six months worth of expenses. Once that account is at six months, I put the rest into another savings account that is specifically for my next car purchase. I’ve been doing this strategy for some time and I absolutely love it.

  14. Susan Frampton says:

    I keep a substantial amount in my checking account because my husband and I have no debt. We didn’t have a mortgage for more than one year when we built our house in 1988-89 with our own hands. After saving for 12 years to build our house and budgeting we had a $30,000 MORTGAGE THAT WAS PAID IN FULL WITHIN A YEAR. We never buy a car(new or used) unless we can pay cash. Our children’s college expenses were paid by cash or they received scholarships etc… We pay off our credit cards monthly. If I can’t afford it in my monthly expenses I don’t buy it but like to have a safety for emergency car or expenses. Both my husband and I have always had seperate checking, savings etc.. We are each responsible for certain bills. NO DEBT…so important! Sue

  15. My strategy is very similar to yours. In my checking account, I keep the equivalent of 1 month’s living expenses plus a $500 cushion. First, it eliminates the stress of overdraft. Second, when a one-time unbudgeted expense comes up (an emergency or, in my case, finding out I have to buy a $155 bridesmaid dress) I can pay for it without having to frantically transfer money from savings. It’s working out well so far.

  16. I guess compared to everyone else I am keeping too much in my checking. I guess I just don’t want to have to little in there and then be a problem. I am going to talk to my husband later today and he what he thinks. Maybe I will end up doing what most seem to do and keep expensives plus 1,000.

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