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How Much Should You Keep in Your Checking Account?

Having enough money in your checking account could help prevent you from taking on high-interest credit card debt.

Chris Scott

Contributing Writer at Tally

October 24, 2022

When it comes to managing personal finances, you may wonder, “How much money should you keep in a checking account?” This is a good question to ask because having the proper amount of money in your checking account could improve your financial health and potentially allow you to make better money-management decisions. It also might prevent you from taking on high-interest credit card debt.

In this article, we’ll explore how much you should keep in your checking account and answer some other frequently asked questions surrounding the topic. Then, we’ll dive into why it’s important to have cash on hand and why you should not rely on credit cards to make purchases. By the end of this article, you should have a much better understanding of how much you should keep in your bank accounts.

How much should you keep in your checking account?

As a rule of thumb, you should have one to two months’ worth of living expenses in your checking account. This will help you cover the everyday expenses in your budget without the worry of overdrawing on your account and being charged an overdraft fee. You can create a monthly expenses list to help you determine the exact amount of money you should have in your checking account based on your personal situation.

It may be more difficult for some than others to save up enough money to cover one to two months of expenses. For example, if you’re living paycheck to paycheck, you will likely need to budget for each paycheck and keep just enough in your checking account to cover your budgeted expenses for that pay period.

In addition to having enough in your checking account to cover your personal needs, your financial institution likely has terms and conditions you must abide by. For instance, your bank may have minimum balance requirements. So be sure to factor that into the amount you need to have in your checking account.

How much does the average person have in checking?

Data from the Federal Reserve indicates that the median amount kept in a transaction account was $5,300. However, the Federal Reserve defines transaction accounts as:

  • Checking accounts

  • Savings accounts

  • Money market accounts

  • Call accounts

  • Prepaid debit card accounts

So, the median amount of $5,300 includes the average person’s cumulative balances across all of these accounts. The Federal Reserve does not offer data specifically on the average or median amounts kept in checking accounts alone. 


How much is too much in checking? 

A great financial goal to strive for is to maintain a checking account balance that covers one to two months of living expenses. If you have extra money, you may want to consider putting it elsewhere besides your checking account. That’s because other types of accounts may offer better interest rates. 

Interest rates are displayed as annual percentage yields (APY). Essentially, banks and credit unions pay you to keep your money in their accounts. The higher the APY, the more money you’ll earn. APYs can vary depending on rates set by the Federal Reserve. 

You should do your homework before opening an account but as a rule of thumb, when it comes to checking accounts and savings accounts, high-yield savings accounts tend to have the highest APYs. Online banks also often offer higher APYs than traditional brick-and-mortar banks.

Is it better to keep money in checking or savings?

Neither type of bank account is better than the other, but each one is better for different things. 

A checking account is better used for money that flows regularly — such as receiving direct deposits from your paycheck, paying bills and making cash withdrawals. 

A savings account is better for stashing money away for later — whether it’s your emergency fund or the money you’re setting aside for a future goal. This keeps your cash accessible for when it’s needed but separate from your regular spending money.

Financial institutions often offer higher interest rates on savings accounts than checking accounts.

No matter which type of account you open, you’ll want to make sure that it is Member FDIC, or FDIC-Insured. FDIC insurance applies to both checking and savings accounts. 

Is $20,000 in savings good? 

In addition to the one to two months’ worth of living expenses in your checking account, you should also strive to keep three to six months’ worth of expenses in an emergency fund.

Whether having $20,000 in your savings account is a good thing depends on your financial situation and your personal expenses. You’ll want to have three to six months’ worth of expenses in an emergency fund. $20,000 may be enough to cover the living expenses of one person, but not another. Understanding your personal financial situation will allow you to properly fund your savings account. 

Once you have fully funded your savings account, you can look into funding other types of accounts so that you are not sitting on cash unnecessarily. Two other types of accounts that you may want to consider include certificates of deposits and retirement accounts.

Certificates of deposits lock you into an interest rate for a predetermined length of time. If you withdraw your money before the expiration date, you may be subject to penalties and fees. 

Retirement accounts are often investment accounts, meaning that your money is in financial products like stocks and bonds. You can technically liquidate these assets, but doing so may take time and also come with tax implications. That’s why it’s important to explore these options only after you have fully funded your emergency fund. 

Why is it important to have cash on hand?

Having cash in your checking account is important for a few reasons. First and foremost, it allows you to pay bills and cover your everyday living expenses. It also provides a bit of a buffer in case an unexpected situation arises.

Perhaps more important, however, is that it can allow you to better manage your personal finances. For example, if you struggle with overspending, paying exclusively with cash or a debit card can help you better stick to your budget.

Why you should not rely on credit cards

Putting purchases on credit cards can be tempting because they allow you to spend money that you don’t have in your bank account. However, it’s important to understand the ramifications of doing so.

Credit cards come with high interest rates. Additionally, the interest compounds. This means that if you do not pay your statement on time and in full, your lender will begin charging interest immediately. The interest is then added to your balance, and subsequent interest calculations are based on this new balance. Essentially, you’re charged interest on top of interest. 

Carrying high balances and missing payments could also impact your credit score.

Properly fund your checking account and work toward financial freedom

When it comes to bank accounts, a question commonly asked is, “How much should you keep in checking accounts?” At a bare minimum, you should have enough in your account to maintain your required minimum balance and avoid overdrafting the account.

However, in an ideal world, you should have at least one to two months’ worth of living expenses in your checking account. Once you achieve this, you can focus on building an emergency fund in a savings account. Properly funding these accounts could put you in a better position to cover your expenses, even during times of uncertainty, and avoid taking on high-interest credit card debt.

If you currently carry credit card debt that you’re looking to pay off, look into the Tally† credit card payoff app. It’s designed specifically to help you pay down high-interest credit card debt quickly and efficiently through the use of a lower-interest line of credit.

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.