How Much Cash To Keep In Your Checking vs. Savings Account

Economic anxiety likely has you thinking a lot more about your money these days. As recession fears loom, and “#opentowork” signs dominate LinkedIn, it’s hard not to be more concerned about your finances. If you’re like most people, you’re trying to figure out how much cash you should stash in your savings, and how much to keep in your checking account.

Unfortunately, many people aren’t saving enough money for a rainy day. According to Bankrate’s recent Annual Emergency Savings Report, 19 percent of respondents said they don’t have any emergency savings.

Knowing how much money you should keep in your checking versus your savings account can help you better stay in control of your finances. Read on to find out what portion of your money to save in which account.

How much money should you keep in your checking account?

A checking account is meant for frequent transactions such as deposits, withdrawals and payments. This account is used for day-to-day financial activities. But there are countless bank customers who treat it as a one-stop money shop.

“If you strictly use your checking account for day-to-day spending, you’ll want to make sure you have enough to cover your anticipated expenses for the month,” says Dimitri Pan, CFP, senior wealth advisor at Ally Invest. “This includes budgeting for groceries, gas and dining out to name a few. This will vary on personal comfort and spending habits.”

If you’re worried about the safety of your money, there’s no need to lose precious sleep. Deposits are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, per insured bank for each account type. The same protections apply if you’re a member of a credit union that’s a member of the National Credit Union Administration (NCUA).

Can you have too much money in your checking account?

Excited to see a large sum of cash deposited into your bank account? You might be tempted to hoard it in your checking account and watch it build up upon the next pay day, but that’s not a good idea, especially if you’re planning to save and grow it. Experts say it’s possible to save too much money in this account.

Excess cash in checking is money that could be working for you but isn’t. “Too much money in your checking account is money not invested for growth,” says Steve Azoury, CLU®, ChFC®, owner of Azoury Financial. “The bank uses the money to make money with returns that are not passed on to you.”

How much money should you keep in your savings account?

A savings account is meant for money you don’t need to access regularly. Most savings accounts offer interest, advertised as an annual percentage yield (APY). The amount you decide to leave in savings will depend on your financial needs and goals. If, for example, one of your goals is to save up enough money for a Caribbean cruise, you’ll want to place those funds in a high-yielding savings account that pays interest, adding a bit more “free” money to your savings stash.

Half of American families have $8,000 or less in their deposit accounts, according to the Federal Reserve’s Survey of Consumer Finances. These accounts include savings, checking, money market and prepaid debit cards.

Emergency savings: How much is enough?

An emergency savings fund will help you get through life’s inevitable emergencies. It’s not a matter of if but when you’ll need to use it. An emergency savings fund is there for you when you encounter such financial setbacks as an emergency car repair, your air conditioning system stops working, or an unexpected job loss. Experts recommend anywhere from three- to six-months’ worth of emergency savings, or longer.

Bankrate’s emergency savings fund study found that more than 37 percent of U.S. adults needed their emergency savings at some point in the last 12 months. Furthermore, 26 percent of people who used their emergency savings at some point in the last 12 months withdrew between $1,000 and $2,499.

Hillary Seiler, founder and CEO of Financial Footwork, recommends separating savings goals into categories: an emergency fund, short-term savings and long-term savings.

Seiler suggests setting aside three to 12 months’ worth of expenses in an emergency fund to cover life events such as a job loss. Financial experts have generally recommended three to six months’ worth of expenses saved. However, with an increasing number of people facing job loss for a year or more, some experts, such as Suze Orman and Tiffany “The Budgetnista” Aliche are extending that recommendation to one year.

The next category, short-term savings, should be devoted to goals within the next three months to 5 years. “These are going to be larger purchases you save for, such as buying a house, a car, or taking a big trip,” says Seiler.

Long-term savings are for goals further down the road. “This is for big-picture goals like retirement, real estate, or wealth-building,” Seiler says. “Think five-plus years out, and put your money where it can grow, like [in] a 401(k), IRA, or investments.”

How to earn more with your savings account

Don’t let large sums of cash sit idle in a traditional savings account. A smart financial move is to put that money in a high yield savings account (HYSA) or a certificate of deposit (CD). Your money will have a chance to work harder for you by earning higher interest rates. APYs for both account types are currently as high as 4.50 percent among the banks that Bankrate monitors.

Another option is to set up automatic transfers to your savings account. When you automate savings, setting aside cash becomes less of a chore.

“Set up automatic transfers from your checking to your savings to ensure consistent saving,” says Karin Cook, vice president of client deposit services at Merchants Bank. “You could also set a portion of your paycheck to be directly deposited into your savings account. Lastly, review your monthly expenses on an annual basis and look for areas to cut back, such as subscriptions. Redirect these expenses to your savings account.”

When should you keep more in your checking account?

It’s not advisable to keep loads of cash in checking, but there are times when it makes sense to pad your account. For example, you might want to take advantage of checking account bonuses or prepare for upcoming expenses. Extra money can also help avoid checking account fees for overdrafts or insufficient funds. If you’re living paycheck to paycheck, maintaining a slightly higher checking balance can provide a buffer against unexpected expenses.

“If you use a debit card as your main form of payment, you should always ensure you have enough money in your checking account to cover your day-to-day expenses,” says

Ryan Bryant, vice president and Kansas City regional delivery manager at UMB Bank.

“If you have an out-of-ordinary month when you know your expenses will be higher due to bills or other scenarios, ensure the amount in your checking account is ready to cover,” Bryant continues.

Bottom line

It’s important to balance the money in your checking and savings accounts in order to manage your money effectively. Careful planning can help you maintain liquidity and maximize growth. What’s more, the practice of balancing your savings and checking accounts can help you build your money management muscles.

“While money in a checking account can be easier to access, particularly if there are no minimum balance requirements, some savings accounts (and checking) require a minimum average daily balance threshold to avoid a monthly service charge,” says Josh Miller, head of consumer acquisition, marketing, and product development for deposits and at KeyBank. “Overall, balancing your funds between checking and savings can lead to stronger financial discipline and better habits.”

There’s no better way to obtain financial peace than by making sure you have a solid plan for your finances. This way, you’ll be able to weather the storm no matter what the economy looks like.