How Much Money Should I Keep in My Checking Account?

Your checking account is the one-stop shop of your financial life, allowing you to track and manage your income and expenses, transfer funds, and pay bills—but is it really the best place to keep all of your available cash?

Like many people, you may be wondering “How much money should I keep in my checking account?” While it’s important to have enough money to cover your monthly costs and any unforeseen expenses, wouldn’t it be better to keep that excess cash in an interest-bearing account, where it could do a little work for you for a change?

Here we take a look at what the right amount of money is to keep in a checking account. We discuss the critical expenses and eventualities you need to cover but also look at some convenient alternatives that allow your money to grow while keeping it easily available. Read on to learn more about making your ready money do more.

CHECKING OR CHECK OUT: SMART CASH CHOICES

Your checking account is your financial front office: the place where your paycheck gets deposited and from where you distribute the bulk of your monthly expenses and allocate money to savings, investments, and debts.

You need to be sure there’s always enough in your checking account to meet upcoming payments and unforeseen expenses. But how much excess cash is smart to keep in your checking account rather than in a savings or investment account? 

A lot depends on your money management style, level of organization, and of course, your long-term goals. First and foremost, however, you need to be absolutely sure you have the ready cash on hand to keep your financial bases covered. While the balance in your checking account will fluctuate throughout the month, you need to be sure you always have sufficient money in place to meet your immediate needs, including:

• Monthly service charges or account minimum balance requirements

• Unforeseen overdraft or non-sufficient funds (NSF) charges

• Temporary Automated Clearance House (ACH) holds on your debit card

• ATM access to a minimum amount of ready cash

Failing to properly account for all these potential expenses will disrupt your account and in most cases end up costing you more money.

HOW MUCH DO I NEED IN MY CHECKING ACCOUNT?

How much you choose to keep in your checking account has a lot to do with how predictable your expenses are. While your expenditures will vary, breaking down where you need your money to go each month will help you nail down a minimum number. Typical needs include:

• Liabilities: Make sure you can make your monthly debt payments, including your mortgage, auto loan, credit card debt, and any student or personal loans. Failing to meet these costs can damage your credit, cost you dearly in late charges, and even put your home or car at risk.

• Fixed expenses: These include fixed payments for utilities, insurance, membership fees, and service subscriptions. It is important to keep track of these, especially if you use automatic payment authorizations that allow vendors to debit your account directly.

• Monthly expenses: How much do you spend on groceries, household products, personal grooming, work lunches, and so on? If you don’t have a set budget, take a look at past bank statements to get an idea of your costs and how much they vary.

• Discretionary Spending: What about typical spending on dining out, clothing, hobbies, and recreation? Be sure to add these to your budget so you don’t overdraw your account on non-necessities. 

HOW MUCH SHOULD I KEEP IN CHECKING?

Tracking your spending will give you an idea of how much money flows through your checking account each month. How much money you keep on hand as a cushion is a personal choice that depends on your comfort level and confidence in the accuracy of your budgeting, as well as your longer-term financial plans.

Keeping most or all of your money in your checking account will ensure you always have funds on hand without having to track expenses too closely, but this convenience comes at a cost. 

Over time, you’ll miss out on interest that your money could have earned in a savings or investment account. That’s interest you could use to start saving for the future, build a nest egg to pay for college or retirement, and grow wealth over time to ensure your family’s long-term security.

Operating a “lean” checking account takes planning and organization. But online banking services, automated payments, and built-in budgeting tools are making it easier to predict spending and manage unexpected costs.

And, in many cases, choosing the right kind of savings or investment account can keep your money as close as a few clicks away, helping you cover your expenses today while still earning the interest you need to live better tomorrow.

THREE ALTERNATIVES TO CHECKING ACCOUNTS

Let’s take a look at some popular alternatives to checking accounts. These offer the same level of security and even some of the services of checking accounts while paying significantly better interest.

SAVINGS ACCOUNTS

Savings accounts are great for keeping money separate but close at hand. You’ll earn slightly higher interest and enjoy convenient services like automatic transfers from your checking account so you can begin to earn interest on your excess cash. However, keep in mind that most restrict the number of withdrawals you can make to six in a calendar month.

You can often transfer money instantly back into your checking account using online or mobile banking (subject to withdrawal limits). You can also sometimes link your savings account to your checking account so that money is transferred automatically if funds in your checking account are insufficient. This helps you avoid an overdraft fee.

Some savings accounts also allow you to allocate money for specific savings goals. GHS Federal Credit Union’s Secondary Share certificate provides all the same flexibility as our full-service Regular Share savings certificate but provides you the ability to separate out your short-term savings for specific things like a vacation, big purchase, or shopping fund.

Savings accounts generally have very low or no minimum required balance. And, like checking accounts, your savings account balance is fully insured up to $250,000 by the NCUA.

MONEY MARKET ACCOUNTS

Interest rates on checking and savings accounts are capped by federal banking regulations. Money market accounts were created to let regular bank customers or credit union members build savings by earning interest at rates closer to the commercial market. 

Money market accounts limit withdrawals in the same way most savings accounts do and often have significantly higher minimum balance requirements or thresholds above which interest is paid. But they often reward investors by paying more interest on larger balances.

GHS’s Money Market Plus account, for instance, is designed to allow members to build significant lump sums with increasing rates for balances above $10,000, $25,000, and $50,000.

Money market account balances can also be instantly transferred to your checking (within transaction limits), meaning your money can earn significant interest while being instantly available should you need it. And, your balance is insured in the same way as regular savings account deposits.

SHARE CERTIFICATES

Share certificates are fixed-term investments designed to allow people with a set savings goal or timeline to accumulate funds on schedule. You can invest in share certificates at most credit unions or banks simply by opening a share certificate account.

With terms from a few months up to five years, share certificates offer interest rates comparable to or higher than money market accounts. Earnings, especially on longer-dated share certificates, can be significantly more than money market and savings accounts. 

For many people, not being able to access your money at will can be a serious concern, so you need to be sure you have enough in your checking or savings accounts to tide you over before investing in a share certificate. However, with minimum balances as low as $500, GHC share certificates offer a reliable, safe, and predictable way to turn your excess cash into real wealth. 

Share certificates are also unique among term investments in that they offer the same level of insurance of both your principal and earnings as you would have with a regular deposit account. That means you can earn significant, guaranteed interest over time with almost no risk.

WHICH ACCOUNT IS BEST FOR YOU?

Which account works better as a place to keep excess cash separate from your checking account depends on how much excess money you have, how readily you need to be able to access your cash, and what your long-term savings goals are. This table shows how the different types of accounts compare with regular checking.

	CHECKING	SAVINGS	MONEY MARKET	SHARE CERTIFICATE
RATES (APR)	Low or no interest earned	Low	Higher	Higher
TERM	No fixed term	No fixed term	No fixed term	Fixed term (6mo — 5 years)
LIQUIDITY	High: Unlimited access	Medium: Easy access but with transaction limits	Medium: Easy access but with transaction limits	Lower: early withdrawal penalties may apply
MINIMUM BALANCE	Low	Low	Higher	Higher
RISK	Low	Low	Low	Low
DEPOSITS FDIC/NCUA INSURED?	Yes	Yes	Yes	Yes
DIVIDENDS	Monthly or no interest earned	Monthly	Monthly	At maturity
YIELD	Low	Low	Higher	High

Now let’s take a look at which products are right for different types of investors.

1. STARTING OUT

If you’re just starting out on budgeting and setting money aside, then a savings account is the best place to keep extra cash. You’ll keep your savings separate but be able to access it immediately if needed and there’s no limit on how little you contribute or keep in your account.

2. EMERGENCY FUND

Building up an emergency fund is a crucial first step to protecting your budget and savings from unforeseen events like medical expenses, urgent car repairs, or an unexpected loss of income. A money market account allows you to build up the needed amount (usually up to six months’ expenses) with higher interest rates while letting you access your cash instantly if need be.

3. SAVING WITH A PLAN

If you’re saving with a goal in mind, like a down payment on a car or a vacation, then a money market account will allow you to start building towards your goal. Choose a flexible money market account with a reasonable minimum balance, like a GHS Money Market Savings account, to get started.

4. STEPPING STONE

If you’re looking to start building a serious lump sum for a home down payment or a retirement fund, then a share certificate can provide a critical stepping stone on your wealth-building journey. Remember to do your budgeting first though. You will pay a hefty fee to pull money out of a share certificate before maturity.

MAKE MORE OF YOUR EXTRA CASH WITH GHS FCU

It’s hard to beat the flexibility and convenience of a money market account for making the most of your excess cash. It’s a great place to stash money you’ve shaved off from your checking account by carefully managing your budget and expenses and you’ll reap the rewards sooner than you think.

At GHS Federal Credit Union we know it’s hard to make the most of the money you have, and even harder to save the money you need to get ahead in life. That’s why we meet the needs of our members with two separate money market accounts designed for different types of savers.

Our Money Market Savings account is intended to help early-stage savers meet their goals or get a foot on the wealth-building ladder. With a minimum balance of $2,500, you’ll make a start on your nest egg through great interest rates, while still enjoying instant access to your funds if you need them.

Our Money Market Plus account is designed to help consistent savers turn a significant lump sum into real wealth. Invest $10,000 or more and enjoy increasing rewards as your nest egg grows. Build towards a new house, a college education, or a comfortable retirement, while still enjoying the flexibility and liquidity of a deposit account investment.

And, like all our services, your GHS money market account comes with the same low fees, competitive rates, helpful resources, and friendly service you expect from a great local credit union. Click below to learn more about which GHS money market account is right for you.

SEE OUR MONEY MARKET ACCOUNT OPTIONS & BENEFITS