Checking accounts is the foundation of personal finance in the United States. According to a recent GOBankingRates survey of 1,000 adults nationwide, more than 91% of America has a checking account, the highest percentage of any account type. However, more than a third of the respondents say that they hardly keep any money at check-in.
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GOBankingRates spoke to experts who were stunned by the study’s findings, as well as some who thought it sounded pretty good. Here’s what money professionals think is the right amount of cash to keep liquid and ready in a checking account.
One hundred dollars? That is it?
The study found that 37% of the country — more than 1 in 3 Americans — have less than $100 in their checking accounts at any given time. 20% of respondents maintain a balance of $101-$500 in their checking account, while 14% maintain a balance of $501-$1,000. Only 10% of people hold balances of $1,001 – $1,500, and an even smaller percentage (5%) hold larger balances of $1,501 – $2,000. The final 14% maintain a healthy balance of more than $2,001 in their checking account.
If you think a double-digit account balance sounds insufficient for a third of the country, you’re in good company. “I’m really surprised the number is so low,” said Julie Ramhold, consumer analyst at DealNews.com. “I would expect that many will still put most of their income into a checking account.”
So, if $99 or less is low, where’s the sweet spot?
“The short answer is that most experts recommend keeping living expenses in your checking account for one to two months,” Ramhold said. “It’s also good to pad that number with an extra 25% to 30% of your monthly living expenses as an extra cushion.”
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Some, on the other hand, think that less is more
Not all experts were shocked by the study’s findings — in fact, at least one thinks the results fit the bill.
“I keep less than $100 in my checking account for a variety of reasons,” says Wendy Barlin, CPA.
The first argument for an ultra-low balance is that checking accounts pays zero interest or, at best, comes close to it – but Barlin made another point that is equally compelling.
“Checking accounts are tied to debit cards, which is the biggest fraud problem,” Barlin said. “I don’t want anyone taking money out of my checking account. I keep all my money in a savings or money market account.”
After all, it’s much easier to get credit card companies to reverse fraudulent charges than it is to get banks to refund money.
The right amount is… There isn’t one right amount
As you can see, the spectrum is so broad that it ranges from $99 to two months of living expenses plus another 30% – and that’s after we spoke to just two experts. Some even said you should have up to six months on hand.
A consensus is elusive, of course, because everyone’s life and financial footprint are unique.
“How much you should keep in your checking account depends on several factors, such as your income and projected expenses, recurring bill payments, and cash withdrawals,” says Laura Adams, MBA and personal finance expert at Finder.com.
Another reason the “right amount” is so hard to determine has to do with the temporary nature of money held in current accounts. Checking accounts are a temporary go-between for money that will be diverted to pay credit card bills, fund investment accounts and IRAs, and settle with the mortgage lender for the month.
“Most people deposit income into their account and make withdrawals from that central account for day-to-day expenses and savings,” Adams said.
One school of thought says the right amount is all you need to cover your expenses – and not much else. After all, what remains can be put to better use elsewhere.
“Since interest income in bank accounts is typically a fraction of 1%, keeping large amounts in a checking account is not a wise option,” Adams said. “Moving excess money into higher-yield savings can help you earn more interest and maintain a separate fund for emergencies.”
There’s even an argument to put that money into an index fund as savings returns aren’t much better than checking returns but if you’re a minimalist checking account remember it’s better to have a little too much to have money than too little.
The Fairy Trap awaits those who cut it too close
While you don’t want too much money wasted on checking when it could make you money elsewhere, a healthy amount of cash is an absolute must if you want to avoid the significant penalties associated with holding an underfunded current account. bill.
“As a general rule of thumb, your goal should be to maintain a balance that helps you avoid the risk of being overdrawn or incurring bank charges,” said Maxim Manturov, chief of investment research at Freedom Finance Europe, a Nasdaq unit. traded Freedom Holding Corp. “With this in mind, your account should never fall below your minimum required balance, so it’s important to consider your spending accordingly, as well as your overall monthly outflow.”
Rule D: Use savings as a failsafe – but only sparingly
It’s likely that part of the reason people keep so little money in their checking accounts these days is that low balances aren’t as dangerous as they used to be. With most banks, you can instantly transfer money from savings to checking if things get tight — even after hours — or you can set up overdraft protection that automatically transfers money from savings to checking to cover an ongoing debt. Those are all incredibly useful tools that seemed like magic a generation ago to anyone who ever wrote a check they didn’t know they couldn’t cover.
But unlike checking accounts, the money you put into savings wasn’t designed to be transient. That money should stay put, and if you overuse your savings account as a backstop for your checking account, you’ll get fines. That’s because Regulation D of the Federal Reserve Board prohibits you from making more than six withdrawals from a savings account per month.
The nature of banking is changing
Technology has led to a generation gap in banking habits and attitudes. In a world of crypto wallets and Venmo, paper checks – and the accounts they are linked to – have taken on a very 20th century feel. Many young people have never written a check and certainly have never used handwritten arithmetic to balance a checkbook, which has come to be the financial equivalent of cursive.
Older people tend to prefer the security of having enough cash “on hand” in their checking accounts, while younger generations tend to think of all their money as always on hand. With 24/7 access to PayPal, p2p payments, buy now, pay later purchase options and almost instant transfers from brokers to banks, why should they worry about the balance in their checking accounts?
“At the height of the information age, people are getting smarter about personal financial well-being,” says James Dunavant, MBA. “Of course, their preferences are also shifting to more transparent platforms that offer faster, simpler and more personalized services. Instead of holding their money in a checking account, consumers are exploring other options that offer greater benefits, whether it’s more convenience, faster processing, more rewards, or fewer hidden costs. The next generation in particular has a better understanding of the wide range of financial tools available to them, and they are willing to do additional research to siphon their money to the best money management services, platforms, and apps that make a sense of their individual needs and goals.”
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Methodology: GOBankingRates surveyed 1,000 Americans ages 18 and older nationwide between December 7 and December 12, 2022, asking nineteen different questions: (1) Which category does your current financial institution fall under?; (2) Have you considered switching banks in the past year?; (3) If you have considered switching banks in the past year, were any of the following factors important? (select all that apply):; (4) What feature, perk or other offer is most important to you when opening an account with a new institution?; (5) Are you currently satisfied with all your banking products and services offered by your Bank/Credit Union?; (6) Would you ever have different types of accounts with multiple banks? (i.e. checking with Chase, but saving with TD Bank); (7) What is your most preferred method of banking?; (8) What is the main reason for you to stay with your current bank?; (9) Which of the following bank accounts do you currently use/have opened? (Select all that apply); (10) What is the minimum balance you maintain in your Payment Account?; (11) How much do you currently have in your Savings Account?; (12) What amount of sign-up bonus would make you consider switching banks?; (13) In the past year, have you considered using app-only banking platforms (aka neobanks) (e.g. Current, Upgrade, Chime, Dave, etc.); (14) How important is it to you that your bank is affiliated with a crypto exchange/platform?; (15) How many times in the past year have you written a physical check? (16) When was the last time you visited your bank in person?; (17) Why would you choose to visit your bank in person? (Select all that apply); (18) When you think about banking, do you see it as something you need or don’t need? and (19) What services/products do you expect from your bank and/or Credit Union? (Select all that apply). GOBankingRates used PureSpectrum’s survey platform to run the poll.
This article originally appeared on GOBankingRates.com: Experts: Here’s how much you should have in your checking account