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How Much Money Should You Keep In Your Checking Account?

How much money should you keep in your checking account so you can make the most of your finances? Here’s how you can calculate the right number for you.

Articles by Fred Egler, CFP®
By Fred Egler, CFP® Financial Planner, Betterment Published Sep. 25, 2019
Published Sep. 25, 2019
4 min read
  • A checking account is often a person’s first financial touchpoint and the account used most often in their daily life.

  • Keeping three to five weeks’ worth of expenses in your checking account can help ensure you have enough money to pay bills and avoid overdraft fees.

  • Betterment’s Cash Analysis feature monitors the cash in your checking account and tells you if we think you have too much cash, or too little.

Your checking account might be the financial touchpoint you interact with most in your day-to-day life: you can get paid through it, you might pay other people with it, and you probably use it as a starting point for pretty much all your money.

Now that begs the question: how much money should you keep in your checking account? 

In this article, we’ll look at:

  • How much cash to keep in your checking account.
  • Why you should have this amount in your checking account.
  • How to calculate this number.
  • What to do with excess cash.

Please note that Betterment is not a bank and this article is intended to be purely educational.

How much should I have in my checking account?

As a rule of thumb, Betterment recommends you should keep approximately three to five weeks’ worth of expenses in your checking account. The exact number comes down to your level of comfort when you check on your bank balance.

Some may want to keep five or more weeks’ worth of expenses in their checking account just to be safe, while others feel comfortable going with just three weeks of living expenses in cash.

Regardless, the threshold you should keep in mind for your checking account is three to five weeks’ worth of living expenses.

Why do I need that much in my bank account?

The main rationale for keeping this amount in your checking account is because it’s not too much, and it’s not too little. It’s just right.

You want to have a healthy amount in your checking account so that you can help avoid an overdraft fee. Your bank may charge you a hefty fee if, even unexpectedly, you overdraft your checking account.

If you want to avoid unnecessary fees for things like overdrafting your account or not keeping up with account minimums imposed by your bank, consider an alternative: Checking.

Our new Checking account features no monthly maintenance fees, no account or deposit minimums, and ATM fees reimbursed worldwide. You’ll also receive a Betterment Visa debit card upon opening your account that can be used with any ATM where Visa is accepted.

Join Checking

If you’re not ready to make the switch to Checking, you can help avoid common checking account fees by:

  • Planning ahead for large bills and purchases.
  • Keeping the three to five week threshold in mind.

You also don’t want too much cash sitting in your checking account. Having too much cash in your checking account may cause you to miss out on higher earnings in other accounts, like high-yield cash accounts or other financial investing goals you may have.

What’s worse, inflation might actually cause the cash in your checking account to lose value, in real terms.

How do I calculate this number?

There are two primary ways you can calculate this number: manually and automatically.

Manually

To manually calculate how much cash you should have in your checking account, look at your weekly or monthly expenses. Take note of how much you are currently spending: bills, loans, payments, and savings.

You can do this directly through your checking account activity, or you can use a budgeting tool. These apps help you track your budget better by categorizing payments and increasing visibility of your spending.

To get consistent data, the longer you do this, the better. This exercise will give you a solid grasp of how much cash you should keep in your checking account.

Automatically

If you want to help keep an optimal amount of money in your checking account but aren’t interested in figuring out the target amount yourself, you can use Betterment’s cash analysis tool.

Through cash analysis, Betterment automatically gathers information on your spending patterns in your linked checking account and provides feedback for an appropriate three to five week checking account balance.

If extra cash is found, our Two-Way Sweep feature will automatically transfer money from your Checking account to your Cash Reserve account. If your checking account balance falls below the balance we predict you’ll need in the next 21 days, we will automatically move money back into your checking account for you.

Open your account

What if I have too much excess cash?

So, what if you have more than enough cash in your checking account, and don’t know what to do with it? Put it to work!

Consider your financial goals: are you interested in paying off debt faster, bolstering your safety net, or getting on track for retirement?

Since you’re already comfortable with the amount of cash in your checking account, consider allocating the excess towards a financial investing goal so that your money can grow against the effects of inflation over time.

If you’re not sure what your financial goals are, schedule a “Getting Started” call with a CFP® Professional at Betterment to help identify and meet your financial goals.

Keep your checking account in check.

Remember:

  • You should target three to five weeks’ worth of expenses in your checking account.
  • Use online budgeting tools or Betterment’s cash analysis feature to help manage your checking account balance.
  • Consider putting your excess cash to work towards another one of your financial goals by investing.

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