Your checking account balance should cover 1 to 2 months’ of expenses, plus a buffer, according to many experts. You should keep enough money in your checking account to cover any recurring monthly bills — like rent or mortgage payments, utilities, car payments, or your student loans — plus a little extra. (If you regularly get cash from an ATM, ensure that you have a large enough buffer for those withdrawals, too.)
You may be thinking, why do I need a buffer? Financial institutions make millions of dollars from overdraft fees charged to their customers. These fees can add up quickly if you’re frequently overdrawing your account, so having a buffer eliminates the chance of you losing that money.
Accessing your money in a checking account is quick and easy, and keeping your balance above the bare minimum will help you avoid those monthly maintenance fees. On the other hand, having a checking account that’s overflowing might mean you’re missing out on earning interest from a savings or retirement account.
If you’re watching your balance climb continuously, you might consider putting the rest into a savings or other type of account, such as a certificate of deposit (CD), money market account (MMA), or another type of investment account. It’s also a good idea to consult with a financial advisor if you’re investing money for the first time.
Average Checking Account Balance
According to the Federal Reserve Survey of Consumer Finances, U.S. households had a median balance of $5,300 for different types of transaction accounts in 2019 (an 11% increase from 2016). Although, in this sense, transaction accounts refer to checking, savings, money market, call accounts, and prepaid debit cards, it still gives us an idea of what the average American has stashed away.
Note: The households with higher incomes significantly skewed the numbers when calculating the median balance.
When it comes to checking accounts, it’s safe to assume that most people have one, especially if they receive their monthly income regularly through direct deposit. But, the amount that each person keeps in their checking account will ultimately differ for a multitude of reasons, and it could come down to personal preference. Some people only like to keep the amount they need on a weekly or monthly basis to avoid overspending. Others view and use their checking account as a place to hold and save all of their funds.
