Your checking account is your financial home base. It’s where your paycheck lands, where you pay bills, buy groceries and gas, and manage day-to-day expenses. It’s essential to keep money on hand for the unexpected, but how much cash should stay in your checking account?
In this article, we’ll break down how much you really need to keep in checking, why keeping too much can work against you, and where else you might consider stashing extra funds.
Explore the topics below for smarter ways to manage your cash.
How Much Should You Keep in a Checking Account?
Reasons to Limit How Much to Keep in Checking
What To Do With Your Extra Money?
Account Comparison & Real-World Scenarios
There’s no right answer to this question. It depends on your financial situation and spending habits. You need to be able to cover your regular expenses plus unexpected costs, but you don’t want to have money sitting idle when it could be earning higher interest elsewhere.
Here are some key considerations to keep in mind when deciding how much to keep in your checking account.
Monthly Expenses
Start with your monthly essentials: mortgage/rent payment, groceries, utilities, and other recurring costs. A good rule of thumb is to keep one to two months’ worth of expenses in your checking account. That way, you’re covered for any surprises and can avoid paying overdraft fees.
How does that look in real numbers? Well, with monthly household expenses of $6,000, you’d want to keep up to $12,000 in your account to manage unexpected expenses.
Here’s how that would look for different monthly expense bills:
| Total Monthly Expenses |
Target Checking Balanced |
| $4,500 |
$9,000 |
| $7,500 |
$15,000 |
| $10,000 |
$20,000 |
| $12,000 |
$24,000 |
Minimum Balances and Fees
That said, if you’re fortunate enough to have stable employment and are assured of getting your regular direct deposits on time, then you may feel comfortable keeping a smaller balance in checking and using the extra funds to boost your savings or to invest for better returns.
However, check whether there are any minimum balance requirements on your account so you don’t get hit with low-balance fees. For maximum flexibility, choose a checking account with a low or no minimum balance. There’s a big difference between a checking account that requires a $5 minimum balance versus one that requires $100!
Limits on Transfers Between Accounts
Be aware that many banks and credit unions still have limits on how many times in a month you can transfer money from a savings or money market account. Ideally, you’ll want to keep enough money in your account to limit the need for transfers from other accounts.
Paycheck Schedules and Direct Deposit
You should also pay attention to when money actually arrives in your account, including your direct deposits and any other regular payments you receive. If you get paid once a month, then you might need to keep a larger buffer than if you get paid a biweekly salary.
Why limit the amount of money you keep in your checking account? The reason is simple: checking accounts are designed to help you spend money, not to save it. Here’s why it makes sense to keep your extra funds somewhere else.
‘Low’ Interest
Traditionally, checking accounts usually don’t offer much in the way of interest. You’re likely better off keeping money in other accounts with higher returns, including savings, money market, or retirement accounts.
That situation has changed with the arrival of high-interest checking accounts that offer good interest or dividends on your balance, sometimes significantly more than what is offered on many savings accounts.
It adds up. The following example shows how $10,000 invested in a high-yield checking account, such as Credit Union of America’s Core Checking Account, will increase over 12 months compared to a regular checking account.
Interest Earned by High-Yield vs. Regular Checking Over 12 Months*
| Account Type |
Starting Balance |
After 3 Months |
After 6 Months |
After 12 Months |
|
Regular Checking (0.01% APY)
|
$10,000 |
$10,000.25 |
$10,000.50 |
$10,001.00 |
|
High-Yield Checking (0.10% APY)
|
$10,000 |
$10,002.50 |
$10,005.00 |
$10,010.00 |
Security
From a safety standpoint, keeping more money than necessary in your checking account is a bit like putting all your financial eggs in one basket. If your card or personal information is stolen, you risk losing a significant amount of money. You may also be held responsible for the fraudulent charges if you don’t report them promptly.
Although many checking accounts come with advanced safety features, like spending alerts and card controls, the risk remains. By limiting the balance in your checking account, you can protect yourself from potential losses.
If you decide not to leave your surplus funds in a high-yield checking account, several good alternatives are available to ensure your money works harder for you.
Savings Accounts
A savings account is a safe place to store money you don’t need immediately, while keeping it accessible in case your situation changes. It’s ideal for building an emergency fund, which is typically 3–6 months’ worth of living expenses to help cover life’s surprises, such as a job loss or unexpected repairs.
Pros: Secure, earns higher interest than most checking accounts. You can access funds easily.
Cons: Limited monthly withdrawals. While rates are better than checking, they’re often lower than other types of savings accounts.
Here’s a comparison of how $500 performs in a savings account vs. a traditional checking account over one year.
Interest Earned by Savings Accounts vs. Traditional Checking Over 12 Months*
| Account Type |
Starting Balance |
After 3 Months |
After 6 Months |
After 12 Months |
|
Savings Account (0.10% APY**)
|
$500 |
$500.13 |
$500.25 |
$500.50 |
|
Traditional Checking Account (0.05% APY**)
|
$500 |
$500.06 |
$500.13 |
$500.25 |
Money Market Accounts
Money market accounts (MMA) are similar to savings accounts but often require a larger minimum balance (usually $500 or more) to avoid fees. In return, you’ll get a better interest rate and some added benefits like limited check writing or debit card access.
Pros: Higher earnings potential than standard savings. The account may come with check or debit card features.
Cons: Higher balance required to open and earn interest. Limited number of transactions per month.
Here’s how $2,500 performs in a money market vs. traditional savings account over 12 months.
Interest Earned by MMA vs. Traditional Savings Over 12 Months*
| Account Type |
Starting Balance |
After 3 Months |
After 6 Months |
After 12 Months |
|
Money Market Account (0.20% APY**)
|
$2,500 |
$2500.62 |
$2501.25 |
$2502.50 |
|
Traditional Savings Account (0.10% APY**)
|
$2,500 |
$2500.31 |
$2500.62 |
$2501.25 |
Regular Certificates
Share certificates (or CDs) are time-based investments rather than everyday deposit accounts. You commit funds for a set term in exchange for a guaranteed return when the term ends.
Most banks and credit unions offer certificates with a minimum deposit of around $500. Terms range from a few months to several years. If you reinvest your returns, you can build steady, insured growth over time.
Pros: Predictable, fixed-rate returns. Variety of term lengths. Federally insured principal and dividends.
Cons: Minimum deposit is usually higher. Early withdrawal may result in penalties.
Here’s how a $500 deposit performs in certificates with varying terms at Credit Union of America.
Potential Returns on a $500 Certificate by Term for a Single Deposit of $500*
| Certificate Term |
Nominal Rate/APY** |
Deposit |
Yield |
|
3 Months
|
1.39% / 1.40% |
$500 |
$501.75 |
|
6 Months
|
1.54% / 1.55% |
$500 |
$503.86 |
| 1 Year |
3.69% / 3.75% |
$500 |
$518.77 |
| 18 Month |
2.72% / 2.75% |
$500 |
$520.80 |
| 2 Years |
3.69% / 3.75% |
$500 |
$538.23 |
| 3 Years |
3.44% / 3.50% |
$500 |
$554.27 |
| 4 Years |
3.20% / 3.25% |
$500 |
$568.18 |
| 5 Years |
3.44% / 3.50% |
$500 |
$593.69 |
IRA Accounts
It’s smart to begin saving for retirement early. Individual retirement accounts (IRAs) offer a safe, tax-advantaged way to build your retirement nest egg. These can be funded either with traditional pre-tax savings or post-tax earnings (Roth IRAs).
Many banks and credit unions also offer IRA Certificates that allow you to invest retirement savings in a certificate with an annual percentage yield and term of your choice. These certificates combine tax advantages with the steady returns of traditional certificates, making them a low-risk way to grow your retirement savings.
Pros: Reinvest dividends and grow savings. Get tax benefits now or upon withdrawal (depending on your IRA type).
Cons: Access is typically restricted until age 59½. May yield less than riskier investments like stocks.
Here’s how a one-time $1,000 contribution grows when reinvested over 10, 25, and 35 years. Remember, you will ideally contribute every month.
IRA Certificate Earnings by Term for a Single Deposit of $1,000*
| Certificate Term |
Nominal Rate/APY** |
Deposit |
10 Years |
25 Years |
35 Years |
| 1 Year |
3.69% / 3.75% |
$1,000 |
$1,445.47
|
$2,512.01 |
$3,631.04 |
| 2 Years |
3.69% / 3.75% |
$1,000 |
$1,445.47 |
$2,421.15 |
$3,499.69 |
| 3 Years |
3.44% / 3.50% |
$1,000 |
$1,362.28 |
$2,280.56 |
$3,106.75 |
| 4 Years |
3.20% / 3.25%
|
$1,000 |
$1,291.31 |
$2,153.25 |
$2,780.52 |
| 5 Years |
3.44% / 3.50% |
$1,000 |
$1,409.88 |
$2,360.26 |
$3,327.69 |
Open Market Investing
You can also choose to invest directly in stocks, bonds, or mutual funds. These assets can pay dividends while you own them and may increase in value, giving you a profit when sold.
The potential gains are higher than with insured bank accounts or certificates, but there’s also a risk of loss. Your money isn’t protected by FDIC or NCUA insurance when you invest in the market.
Pros: Potential for greater returns and dividend income. Flexibility to buy, sell, and reinvest at your pace.
Cons: Market volatility can result in a loss. Investments must be actively managed, often with brokerage fees.
Use the following table to compare different types of accounts and their best uses to determine which product works for your money needs.
| Product |
Best For |
Description |
|
|
Checking Account
|
Everyday transactions |
Basic checking account for daily needs |
Learn More
|
| High-Yield Checking Account |
Everyday transactions and earning interest |
Checking account with higher interest rates
|
Learn More |
| Savings Account |
Building savings |
Standard account for saving money
|
Learn More |
| Money Market Account |
Flexible savings, higher returns |
Hybrid account offering higher returns |
Learn More |
| Certificates |
Fixed-term savings, guaranteed growth |
Term-based accounts with a fixed interest rate |
Learn More |
| IRA Certificates |
Long-term growth |
Continuously invest certificate earnings to build wealth |
Learn More |
| Market Investing |
Investing with carefully managed risk |
Brokerage-managed investment account |
|
Ultimately, your financial portfolio depends on your short- and long-term goals, and will change significantly throughout your life. Let’s break down some common financial life stages and the best mix of tools to meet you where you are:
- New job, new place: Living on your own for the first time means your paycheck is stretched thin. Rent, food, and bills add up fast. Set yourself up with a basic checking account to track spending while you work on your monthly budget.
- You finally got that raise!: Now that you’ve got more breathing room, it’s time to plan. Open a savings account and start building your emergency fund. You might also move some of your extra funds into a high-yield checking account to earn more while staying flexible.
- Starting to look ahead: You’re thriving, and you have money to spend. Whether it’s a vacation, a wedding, or a new car, mid-term goals need smart saving. A money market account offers better returns and easy access, while certificates reward your patience with solid growth over time.
- Big steps: Starting a family? Thinking about homeownership? These goals require serious saving strategies. Consider a mix of certificates and money market accounts to grow your cash reliably. If you’re ready, explore the stock market for long-term growth—and don’t skip those IRA certificate contributions.
- Thinking long-term: You’ve built a home and supported a family. Now it’s about ensuring a comfortable retirement and a legacy for your loved ones. It’s time to max out your IRA contributions, keep investing wisely, and consider opening certificate accounts for your children or grandchildren to give them a strong start.
In Wichita, we’ve got our boots on the ground and our heads in the clouds — and with good reason. The ICT has a lot going for it, from good-paying aviation jobs to lower prices at the checkout. And, our affordable housing prices are attracting families from all over.
If you’re smart enough to live in Wichita, you’re smart enough to know that good financial planning starts with the right tools. You’ll find them at Credit Union of America. Our high-yielding Core Checking Account is a great launch pad, with generous dividends topped off with perks and benefits.
With no minimum balance and dividend payments on balances over $1,000, our Core Checking account is designed to be flexible while rewarding you for saving your money. And with EarlyPay1, you can get paid up to two days earlier!
Ready to take flight with Credit Union of America? Click below to get started!
SEE OUR CORE CHECKING ACCOUNT BENEFITS
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