How Much Money Should I Keep in My Checking Account? – Detailed Article
It’s not necessary to have more cash than you need in your checking account. Money that is kept there is easy to access. It is equally important to have a bare minimum to avoid monthly maintenance fees. However, having a bloated checking account only means that you will miss out on higher returns in a retirement or savings account.
On average, Americans have approximately $2,900 in their checking accounts, with $1,250 being the median, based on research in 2019. For you, the right number can be either higher or lower; it is all about what works for your budget. This article will talk about what is a good amount to have in your bank account.
What Is the Average American Checking Account Balance?
As mentioned above, the average American checking account balance contains $2,900, with $1,250 being the median in 2019. Based on this research, it has been found that the median balance of US-based checking accounts has increased with each passing year since 2004; of course, the 2009 economic recession caused a significant dip immediately.
However, the mean or average checking account balance never stopped growing in the 21st century. The difference between the mean and the median has been explained by the unique structure of the survey conducted by the Federal Reserve.
- The SCF has been designed to provide information about various financial assets held by American consumers and multiple types of assets like bonds and stocks held by the wealthy. Hence, the survey includes a varying amount of high-income individuals to provide significant statistics about these assets.
- In the case of American consumers with checking accounts, these sources of income are often associated with higher income levels. The average balance between 2013 and 2016 has increased for almost every income group, except for the lowest and highest-earning consumers.
What Is a Good Amount to Have in Your Bank Account – Sum Total
How much money should I keep in my checking account? It is essential to know the right amount to have in your checking account. You will reduce the risk of fees and elevate you to a decent financial position, even if there is a financial emergency.
You will have to have a minimum daily balance in your checking accounts, which will help you avoid fees. In some cases, the minimums can be as low as $5, while you may have to add higher amounts like $500 and $1,000 in others.
Everyday Expenses
If you are using your checking account for your daily expenses like gas, groceries, etc., you will have to add the sum of these amounts to your monthly bill payments. Your daily expenses will fluctuate, which is why you can review the expenses of the few previous months or start tracking your purchases. Experts suggest that the more time you spend tracking your finances, the better you will figure out the average costs.
With the help of these averages, you will be able to determine how much money you spend outside the required bills so that you can set it aside in your checking account.
Overdraft Cushion
There are many reasons why you should have a minimum balance in your checking account. By maintaining an average bank account balance of, for example, $100, you could avoid overdrafting, something seen in payday loans. If you do not have overdraft protection, it is a possibility that an automatic debit or bill payment can bring your balance down to zero. In turn, this could lead to an insufficient fee from your bank.
Of course, $100 may not be enough to cover essential bills. However, it can help you avoid overdrafting due to small monthly bills that you may forget about, like streaming services or automatic phone bill payments.
Maintaining the Right Balance If Fees Are Involved
Some banks may charge you a monthly maintenance fee if you do not maintain a minimum balance.
- Hence, it is essential to maintain an average amount of money in a bank account so that it can help you avoid fees.
- On the other hand, there are also some types where you do not have to maintain a monthly minimum balance. This may be an easier option if you want to learn how to manage your checking and also save some money.
Why You Should Not Have Too Much Money in Bank Account?
Typically, we keep all the money in our savings account and skip the checking account altogether. This is because savings are limited to six transactions in a month, which is not practical for people that need to make debit card purchases and/or pay the bills.
It’s the reason why you should also have checking accounts. However, it is not considered the best place to store all your cash. Here are the reasons why you should not place too much money in a bank account:
Low Rates of Interest
It offers lower interest rates than money market accounts and online savings account. It is preferable to keep your cash in a place that generates the most interest. And, checking is definitely not that option.
Risk of Theft
While this risk is minimal, money in your checking can indeed be stolen easily with the aid of your debit card. If your debit card gets stolen or lost, your account could be cleaned out via unauthorized ATM withdrawals and purchases. It is not a surprise that debit cards are poorly protected, leading to your account getting compromised.
The Bottom Line
It is essential to understand that you should have an average amount of money in a checking account. However, it’s just as important to know that you need not have a large bank account balance. Instead, it would just be better to opt for personal loans and installment loans.
References:
- https://www.realsimple.com/work-life/money/saving/checking-bank-account-balance-amount
- https://www.valuepenguin.com/banking/average-checking-account-balance
- https://www.discover.com/online-banking/banking-topics/how-much-money-should-you-keep-in-your-checking-account/
- https://www.cnbc.com/select/how-much-money-should-you-keep-in-bank-accounts/
- https://www.fool.com/the-ascent/banks/checking-accounts/how-much-should-i-keep-in-my-checking-account/
With over 20 years of experience, Michele Cagan is committed to helping people manage their business and personal finances to secure their financial futures. She has written several books and articles on finance and accounting, helping translate complex theories and simplifying confusing jargon. Michele believes understanding personal finance is valuable to one’s development, so she is focused on sharing information to assist people in improving their financial management. Ms. Cagan served in private and public accounting and also taught college-level finance and accounting courses. Michele Cagan, CPA, is a valuable contributor to our network who has been helping us enhance the value and credibility of our content.
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