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How Much Cash to Keep in Your Checking vs. Savings Account

Aim for about one to two months’ worth of living expenses in checking, and another three to six months' worth in savings.
Sept. 19, 2018
Banking, Checking Accounts, Savings Accounts
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The more cash in your checking account, the better, right? Not necessarily.

Money in a checking account is easy to access, and keeping balances above the bare minimum can help you avoid monthly maintenance fees. But having a bloated checking account means missing out on higher returns in a savings or retirement account.

Here’s a quick look at how much cash to keep in your checking and savings accounts.

Track your monthly spending

Get a clear overview of how much money you spend each month, but don’t just conjure up an estimate out of thin air. Keep a daily spending log for three months, including purchases made with your credit card. Track your expenses and include bills and other payments that are automatically deducted from your checking account, like gym membership fees or loan payments.

Once you know how much cash your account absolutely must hold — most experts recommend four to eight weeks’ worth of living expenses — add 30%. That extra buffer will help in case your checking account is nearly empty after paying your bills.

Why? Banks earn billions of dollars off of fees charged to customers for overdrawing on their account or for bouncing a check.

Running afoul of minimum balance requirements can also cost you money. Let’s say your bank waives monthly maintenance fees for balances of at least $1,500. If that’s the case, keep at least an additional $500 in your account for an added layer of security. That way, an unexpected expense or a one-off purchase won’t drag your balance into dangerous territory.

Put additional cash somewhere more profitable

Now that you’ve arrived at how much you’ll keep in your checking account, direct your other money someplace else. Why? Most checking accounts don’t earn interest.

One option is opening a high-yield savings account. Online-only banks tend to offer the highest rates. Some have annual percentage yields, or APYs, around 2%. That is significantly higher than the national average of 0.08% APY.

With these options, your emergency fund won’t simply accumulate — it can grow.


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So how much should you have in savings? It is generally recommended to keep an emergency fund of about three to six months’ worth of living expenses for unexpected expenses.

Once your savings account holds that amount, consider opening an additional retirement account or increasing your contributions to existing retirement funds. Those include 401(k)s and individual retirement accounts.

Keeping the right amount of cash in your checking and savings accounts ensures that you’re able to cover your daily needs and emergencies, avoid unnecessary bank fees and grow your long-term savings.

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