How Much Money Should You Keep in Your Checking Account?

For most people, and most checking accounts, keeping enough money in the account to cover your monthly budget, plus a small buffer for unforeseen expenses, is the right amount.

“Expenses” in this context include more than just your rent and utility bills. Average out your spending over several months. If your bills, grocery purchases, membership/subscription fees, dinners out, and other expenses are consistently about $2,000 a month, then keeping $2,500 in your checking account might be the safest balance.

It’s better to have too much in your checking account than too little, but carrying a balance that’s four or five times your monthly average budget means you could be missing out on interest from higher-yield savings accounts.

The rare exception to this rule is for people with a High Yield Checking Account, like OnPath’s Rewards High Yield Checking. For those account holders, the yield on their checking account is likely higher than what they earn in their savings account. Those savers should look more closely at the yield cap when deciding on their ideal checking account balance.

For example, with OnPath’s High Yield Checking, account holders earn 6% APY* on average daily balances up to $10,000 and 0.50% on balances above $10,000.

If you have a high yield checking account, the important question is what to do with funds over the $10,000 cap. If you have a money market or savings account that earns more than 0.50% APY, you may want to transfer excess funds over to that account. However, if 0.50% APY still beats your other savings accounts, you could maximize your yield by simply leaving extra balance in your checking account.

What Checking Accounts Are Really For

A checking account is designed for everyday money. This is usually where your paycheck is deposited and where money comes out for things like rent, utilities, groceries, gas, subscriptions, and other regular expenses.

Because checking accounts are meant for frequent transactions, they typically pay little or no interest compared to savings accounts, money market accounts, or certificates.

People with a normal low-yield checking account should usually use it as an “operating account” for monthly spending and bills, not as a place to store large amounts of money long-term.

Problems With Keeping Too Much Money in Checking

The most obvious downside to parking excess money in a checking account is missing out on interest, but there are some other potential challenges.

Most importantly, keeping all your money in checking can make it harder to separate emergency savings and long-term savings from everyday spending money. Savers may be less restrained with their purchasing decisions when they see a large balance.

Problems With Keeping Too Little in Checking

Keeping too little in your checking account can create different and potentially more serious problems. If your balance is always close to zero, timing issues between paychecks and bills can lead to overdrafts or declined payments.

Declined payments typically won’t cost you anything, but overdraft and courtesy pay do come with fees, and those fees can add up if it’s a regular occurrence.

Automatic payments, pending debit card transactions, and subscription charges don’t always hit your account on the exact day you expect. You might have plenty of money when your direct deposit arrives in a week, but that doesn’t help you buy groceries today.

A small cushion in your checking account can help prevent overdrafts and missed payments caused by these timing differences.

Finding the Right Balance for Your Checking Account

There isn’t one perfect number that works for everyone. Someone with steady income and predictable bills may be comfortable keeping a smaller checking balance, while someone with irregular income or variable expenses may prefer to keep a larger cushion.

Rewards High Yield Checking is a rare account that inverts the typical ‘best practice’ approach. When your checking account earns more than your savings account, keeping extra money in your everyday checking account may be the better choice.

Although we’re based in New Orleans, OnPath Credit Union membership is open to everyone who makes a $5 donation to the OnPath Foundation. Open a Rewards High Yield Checking account today and start maximizing your yield.