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It’s nearly impossible to enjoy today’s modern conveniences without a checking account.
They make it easy to access your money, pay bills, and set up automatic payments.
Having a checking account is standard for almost every adult, but how much money should you keep in it?
Keep Less Money in Your Checking Account
It’s often recommended to keep around 1-2 months of living expenses in your checking account.
If you have a steady income that’s regularly deposited into your account, then keeping one month of living expenses or even less may be a better option.
Here’s why you want to keep just a small cushion in your checking account:
- It’s the quickest way to access your money. The liquidity of the checking account is king.
You’re able to get cashback and pull cash from an ATM. You may run into merchants that will only accept debit cards or cash.
- No more overdraft fees. It’s common to have multiple expenses occur all at once.
Knowing that you have enough in checking to cover everything saves you money and gives you peace of mind.
- Some banks require you to maintain a minimum account balance. If you go below the amount, you’ll be charged a fee.
- You’re less likely to pull money out of savings and investment accounts. If you don’t keep enough in checking to cover necessary expenses, you’ll end up draining your savings accounts or, worse, your retirement accounts.
Here’s why you shouldn’t keep too much cash in your checking account:
- You don’t earn any interest on your excess cash. Some banks pay interest on checking accounts, but even then, it’s not enough. Put every cent of your extra money to work.
High yield online savings accounts are the best alternative. If you don’t need the money for a while, then investment accounts are even better.
- You’ll be less likely to spend your money. The easy access that comes with a checking account can lead to overspending.
It’s psychologically harder to spend money that you’ve had to take out of your savings.
- Better security. Your money is less secure in a checking account. If you lose your debit card, a thief will have access to your entire balance. You can dispute the charges, but if you don’t catch it soon enough, you’ll end up being responsible.
If you don’t live paycheck to paycheck and have an emergency fund, you can get away with keeping the bare minimum in your checking.
Just keep an eye on your budget and save enough to cover your monthly expenses.
You’ll be able to build your savings and investments faster instead of having your cash sit in a checking account.