Many Americans keep just a few hundred dollars in their checking account, making overdraft fees from mistimed payments a common concern.
So, how much cash should you keep in your debit account?
Financial planners generally recommend enough to cover a month’s worth of bills, plus maybe a small buffer for peace of mind. But you don’t want to keep so much in checking that you miss out on the interest you could earn in a high-yield savings account, or leave your money more exposed to fraud.
“I encourage people to keep a month of expenses in their checking account, especially if they don’t closely monitor their cash flow,” says Jessica Goedtel, a certified financial planner in Pennsylvania.
However, “checking accounts often lack the protections of credit cards,” meaning that “funds can be more difficult to recover” if your card is compromised, she says. For that reason, it’s best not to hoard cash in your checking account.
Gregory Guenther, a chartered retirement planning counselor in New Jersey, recommends keeping enough in checking to cover a typical week or two of bills.
However, “the right checking balance isn’t just about dollars, it’s about headspace,” he says. “Too little, and you’re anxious about every swipe; too much, and you’re missing out on growth in higher-yield accounts. The sweet spot is personal, but it should let you live without double-checking your balance before buying groceries.”
Don’t forget about emergency savings
While maintaining a healthy checking balance can help you avoid overdraft fees, it’s not a substitute for emergency savings.
Emergency savings are meant for big, unexpected expenses, like medical bills or job loss. Financial planners typically recommend setting aside three to six months’ worth of essential costs in a separate, easily accessible place, such as a high-yield savings account. That way, the money is available when you need it, without the risk or delays that come with stocks or retirement accounts.
While six months of savings might sound like a lot, think of it as a goal to build over time. Any amount you can put aside will help in case of an emergency.
“I typically tell my clients to keep working capital in checking … meaning, income comes in and they pay their bills from there,” says Catherine Valega, a CFP in Massachusetts. “Keep enough so you have a margin of error.”
An emergency fund gives you breathing room for the unexpected and lets your checking account do what it’s built for — handle everyday cash flow, Guenther says.
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