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How Much Money Should You Keep In Your Checking Account?

access_time Posted on: March 1st, 2019

The amount of money you keep in your checking account is important. Since the goal of a checking account is to process transactions, checking accounts shouldn’t necessarily hold a large sum of money. Rather, they should provide enough funds to cover the transactions you plan to make within any given period of time.

Breaking Down How Much Money To Keep In Checking Account

When you learn how much money to keep in your checking account, you can make sure your funds are working for you in the best way possible. There are a few things to consider.

Money Going In, Money Going Out

The key factor to keep in mind about checking accounts is that they are commonly the most active type of money management tool.

Most often, this is where you deposit your paycheck and pay your mortgage. You may have direct deposits coming in and electronic transfers to your utilities, credit lenders, and others going out.

But if you deposit all your funds into checking and leave it there, it is possible you are limiting your earning power. Could those extra funds be used in a savings account or another dividend-earning account? If so, how much should you move to another account?

Determining How Much Stays So Extra Funds Can Earn You Money

How much money to keep in checking account must be enough to cover any outgoing expenses.

This total includes:

  • Monthly bills
  • Spending transactions processed on your account debit card
  • Automatic transfers you have set up

It is also advisable to add in a buffer. This way, you don’t have to worry about overlooked bills or charges that may be higher than expected. It also enables you to avoid potential overdraft fees.

Calculate Expenses & Debts

Sure, it’s easy to come up with a ballpark estimate what you’re spending every month, but we encourage you to focus on actual information. Take a look back over the last three months and track the following:

  • Money spent on debts such as credit cards
  • Money spent on mortgage payments
  • Average utility expenses
  • Everyday purchases on shopping, dining out, entertainment, gas, etc.
  • Automatic transfers or regularly scheduled payments and really paying attention to online subscriptions or recurring payments you don’t use, or need. You may find you can add an extra $100 or more a month to your budget by simply eliminating subscriptions you don’t need, but keep forgetting to cancel .

By gathering information from the last three months and creating an average, you can make better, and more secure decisions about how much money to keep in your checking account.

Understand Your Bank Or Credit Union’s Requirements

Depending on the type of checking account, it’s possible there may be a few requirements that apply.

A basic checking account is not likely to require you to maintain a balance on the account. However, larger interest-earning accounts have minimum balance requirements. If so, you need to keep your balance at this level to avoid fees, so make sure you are familiar with the details of your checking account first.

Don’t Maintain Large Balances In Your Checking Account

Let’s say you have a basic checking account. You may be tempted to just keep putting money into the account without much thought regarding the balance.

Although accounts are protected up to $250,000, leaving those funds there may not be ideal for several reasons.

To start, unless you have a interest-bearing checking account, letting your money sit in an account isn’t doing much for you and your balance isn’t growing in value.

Instead try these tips to build your financial wealth:

  • If you have an extra amount of funds in your checking account, add it to a savings account. This allows you to earn at least a small portion of interest each month.
  • If you have a large amount of money in your checking account, add some to a certificate account or mutual fund investment for greater growth potential.
  • If you have a significant amount of extra money consider moving it into a retirement account. This may help you reduce your taxes while also enabling you to grow funds for your retirement years down the line.

To get to a comfortable point of transferring funds out of your account, it’s important to consider what you really need in terms of how much money to keep in checking account.

Finding Balance In How Much Money To Keep In Checking Account

At Belco Community Credit Union, we offer a variety of checking and savings accounts to give you the flexibility you need to make payments and earn interest on your funds.

Take a closer look at the variety of options available to you. Our representatives can also help you learn how much money to keep in your checking account.

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