A checking account is at the core of many people’s personal finances. Paychecks and direct deposits often flow into the account, while day-to-day spending and bill payments come out of it.
Sound familiar? If so, it wouldn’t be surprising if you’ve asked yourself, “How much money do I need to keep in my checking account so all my bills get paid on time?”
Well, the answer can vary depending on your circumstances. “Every time I get paid, I look at the bills I have coming up before my next paycheck and make sure I have enough in checking to cover those bills,” says Ben Luthi, a personal finance writer.
In addition to the amount you need to pay your bills and other everyday purchases, you may have other reasons to keep at least $100 in your checking account. Luthi says having a buffer in his checking account helps him cover unexpected expenses.
But how much money should you keep in your checking account? While the exact amount will vary from person to person, here are a few helpful rules of thumb to consider:
Keep enough to cover bill payments and debits
How much money should you keep in your checking account? To determine your optimal checking account balance, you may want to start by making a list of your monthly bill payments and other debits, such as automatic transfers to savings, that are linked to the account. This will help you determine the bare minimum you’ll need in your account—before getting into other types of spending.
Some of these bills (think your favorite credit card) can vary from one month to the next. “You can figure out your variable expenses by staying on top of your finances with a budget or using an app to track your spending,” suggests Ryan Inman, a financial planner for physicians.
If you haven’t been consistently tracking your spending, you can go back and review your account statements or bills to figure out your average monthly expenses. You can use that figure as a starting point if you’re asking, “how much money should you keep in your checking account?”
Inman says that for utility bills and other payments that vary seasonally, you could try to estimate your total annual expense, and then divide that by 12 to determine your average monthly expense.
He also suggests saving a portion of the amount you need for large recurring expenses, such as bi-annual insurance premiums, each month and keeping the money in either a checking or savings account.
“You can figure out your variable expenses by staying on top of your finances with a budget or using an app to track your spending.”
Account for everyday expenses, too
If you use your checking account for your everyday purchases—groceries, gas, going out—you’ll want to add the sum of these amounts to your monthly bill payments and debits to answer the “how much money should you keep in your checking account?” question.
Since your everyday spending likely fluctuates, you could review the previous few months’ expenses or start tracking your purchases. “The longer you track your finances, the better you can do at figuring out your average costs,” Inman says.
Using those averages (and aiming for the high end of the range) is a useful way to determine how much you tend to spend outside of regular bills and need to set aside in your checking account.
Include a cushion to avoid overdrafts
One of the reasons to keep at least $100 in your checking account, or perhaps $100 beyond what you think is absolutely necessary, is to avoid overdrafting.
If you don’t have overdraft protection, it’s possible that an automatic bill payment or debit could bring your balance below zero, which could lead to an insufficient funds fee from your bank.
“I always keep a buffer of a few hundred dollars in my checking account,” says Luthi, the personal finance writer. “If I forget about an upcoming bill, underestimate how much it will be or need to send someone money or withdraw cash, I don’t have to worry about overdrawing my account.”
While $100 might not be enough to cover major bills, it can help you avoid overdrafting due to a small monthly bill—a streaming service, say—that you might forget about.
Maintain the required balance if fees are at stake
Some checking accounts may charge a monthly maintenance fee if you don’t maintain a minimum balance. If you’re wondering, “Should I keep extra money in a checking account?”, the answer is likely yes… if the additional funds will help you avoid fees.
However, switching to a checking account that doesn’t have a monthly maintenance fee or balance requirement, such as Discover Cashback Debit, might be an easier way to manage your checking account and save money.
“I always keep a buffer of a few hundred dollars in my checking account. If I forget about an upcoming bill, underestimate how much it will be or need to send someone money or withdraw cash, I don’t have to worry about overdrawing my account.”
Put your extra money elsewhere
If you have enough money in your checking account to cover your bills and general expenses and avoid potential fees and overdrafts, you may once again ask, “should I keep extra money in a checking account?”
Some checking accounts pay interest, in which case it may make sense to keep your money in the account. But moving extra money to a savings account, which typically offers a higher interest rate, could be a good idea.
“I have multiple savings accounts, each earmarked for a different goal,” Luthi says. “Separating them into different goals makes it easier to know where I stand with each.”
It can also be easier to avoid the temptation to spend money you intend to save when you keep your savings separate from your day-to-day spending cash—and know it’s earning money for you thanks to compound interest.
Continue to monitor your account and bills
Figuring out the answer to the question “how much money should you keep in your checking account?” is an important first step. Growing your checking account to that point is a vital second step. Once you’ve accomplished these goals, set calendar reminders to review your account balance and adjust the amount you keep in checking as your needs change.