How Much Should You Keep In Your Checking Account?

How much cash should you actually keep in your checking account? Keeping too much can mean missing out on valuable savings interest, while keeping too little can leave you vulnerable to unnecessary fees.

Here’s how to find the right balance for your budget while keeping your money working for you.

There’s no one-size-fits-all answer

Exactly how much you should keep in your checking account is a personal decision. The answer really is whatever amount makes you feel comfortable.

Personally, I like to keep one month’s worth of expenses in my account at all times. Some people prefer to keep even more, while others keep their checking balance as low as possible and move money in and out of savings as needed.

There are trade-offs to both approaches.

Keeping too much in checking can mean missing out on potential interest. Money that could be sitting in a high-yield savings account earning interest is instead sitting idle, potentially earning nothing.

Keeping too little in your account creates a different set of problems. You could end up paying overdraft fees if you aren’t careful, and constantly worrying about keeping your balance “just so” can cause unnecessary stress.

Finding the right balance between earning more interest and reducing financial stress is a personal decision. For me, I’d rather stress less, even if that means giving up a little interest.

What your checking account should cover

When deciding on how much you should keep in your checking account, consider what it should cover. Typically this would include:

• Monthly bills
• Regular spending
• A small cash bufferBeing able to pay a month’s worth of bills without having to check your account balance is a huge stress relief. You’ll also want to be able to cover your regular spending, such as groceries, gas, and fun money.

You’ll also want to consider a small cash buffer. If your checking account requires you to keep a minimum balance to avoid fees, then you’ll want your buffer to be at least that amount or more. This allows you to avoid overdrafting your account if things don’t go exactly to plan.

Having a bit extra to cover an unexpected expense allows you to do what you need to do in the moment and transfer funds into your checking account at a more convenient time.

When you’re keeping too much cash

If you keep more money than you need in your checking account, you are missing out on potential interest. You want to keep enough in your checking that you can cover your expenses without worrying, but you don’t want to leave money on the table either.

High-yield savings accounts are currently paying about 3% APY while most checking accounts don’t pay any interest at all. So you’re missing out on a free $30 per year for every extra $1,000 you keep in your checking account.

Also, the more you keep in your checking account, the more access fraudsters have if they steal your account information. Most banks have a $0 liability policy, which means that you will be fully reimbursed for any money stolen from your account, but this can take a few days.

If thieves empty your checking account, and you don’t have a savings account to get you through for a few days, then you may find yourself in a sticky situation.

When you’re not keeping enough cash

The flip side of keeping too much cash in your checking account is not keeping enough.

Of course, the biggest risk of not keeping enough cash in your checking account is fees. If you spend money you don’t have and cause your account balance to go into the negative, the bank will charge an overdraft fee. In 2024, the 10 biggest banks in the U.S. charged almost $5 billion in overdraft fees.

You may also pay fees if your balance drops below the minimum balance requirements. Many accounts have a monthly fee that is waived if you keep your balance above a certain amount. So you may be charged a fee if your balance goes too low, even if it doesn’t actually drop into the negative.

Beyond the fees, keeping your balance too low can also be stressful. Constantly watching for transfers and deposits to clear and trying to perfectly time your paychecks and payments can be exhausting.

Keeping a little more breathing room in your account can make managing your everyday finances much easier.

How Lunch Money can help you manage cash

Using a financial management app like Lunch Money will help you know exactly how much you will need for upcoming bills and spending. You can set your budget categories to be as broad or precise as needed.

For example, you could set just three categories: bills, spending, and savings. Or you can break it down into categories for each individual bill and spending category. You simply connect your accounts and Lunch Money will automatically pull in all your transactions. Then you just need to categorize each transaction, and you’ll quickly see exactly how much you are spending.

You can try Lunch Money for free for 30 days. This allows you plenty of time to dig in and see if it works for you.

Monitor cash flow across all your accounts

Lunch Money lets you easily keep an eye on your accounts. You can securely link all your accounts and keep an eye on all your transactions and balances in one place.

This helps you make sure all your accounts are properly funded, and you aren’t keeping too much or too little in any particular account.

Plan upcoming bills with recurring transactions

Lunch Money’s recurring transactions feature can help you anticipate upcoming income and expenses. For example, if you know your rent is due on the first of every month or your paycheck arrives every two weeks, you can set those transactions as recurring in your budget.

This gives you a clearer picture of what money is expected to come in and go out, making it easier to decide how much cash you need to keep in your checking account.

Custom budgeting periods

With Lunch Money, you can also set up custom budgeting periods. For example, you can set weekly or bi-weekly budgeting periods to match your paychecks. This allows you to know exactly how much you’ll need in your checking account to get you through to the next period.

This is perfect if you don’t like budgeting on a month-to-month basis.

This allows you to adjust the amount in your checking account to reflect what will be happening for the upcoming period.

Summary

At the end of the day, how much you keep in your checking account is up to your financial situation, budgeting style, and preferences.

Keeping more in your account will lead to less stress but can cost you some interest. Keeping less can maximize your earnings, but may lead to more stress and the risk of fees if you aren’t careful.

The best thing you can do is find a balance that works for you. Also, it’s not a permanent decision. Do what works best for you today and adjust as your situation changes.

FAQs

Is $5,000 too much in checking?

Keeping $5,000 in your checking account may be too much, or it may not be enough, depending on your individual situation. If your monthly expenses are well under $5,000 per month, then it may be too much, and you might be better off moving some of that to a high-yield savings account.

However, if your monthly expenses are $5,000 or more, then you may want to keep even more than this amount in checking.

Should my emergency fund stay in checking?

Probably not. A fully funded emergency fund is considered to be three to six months of living expenses. That can add up to a significant amount of money, so keeping it all in an account that doesn’t earn interest may not make sense.

Plus, you may want to make it more difficult to access so you don’t accidentally spend your emergency fund on something other than an emergency.

However, it is a good idea to keep a small buffer in your account to avoid overdraft fees.

How often should I review my account balance?

It depends on your individual situation. If you are living paycheck-to-paycheck or purposely keeping your account balance low, then you’ll want to review your balance quite often, perhaps even daily.

If you tend to keep larger amounts of money and don’t need to worry about overdrafts, you should still review your account at least monthly.