You're about to leave our secure website.
You are about to navigate away from our secure website. We are not responsible for any content or information posted to third-party sites.
Online Banking
You are about to navigate away from our secure website. We are not responsible for any content or information posted to third-party sites.
Checking accounts are a necessity for most people since they make paying bills, buying groceries, and other expenses much easier than they would be with cash alone.
Your checking account is the hub of your financial life, essential for receiving money, paying bills, buying groceries, and other expenses. While having it readily available and easily accessible is important, how much of your money should you keep in your checking account?
In this blog, we take a look at the considerations that go into deciding how much money to keep in your checking account and explain why it’s important to spread your money among several accounts. We also explore the pros and cons of the most popular places to stash your cash.
Click through the links below to discover where to put your money!
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
How much money you should keep in your checking account depends on your financial situation and spending habits. You want as much money as you need in your checking account to cover your expenses while not holding on to cash that could be better used elsewhere.
Here are some of the key considerations that should go into deciding what checking account balance works best for you.
First up, your checking account balance needs to be able to cover all your monthly costs as well as absorb any unexpected expenses.
A good general guideline is to keep enough to cover one to two months of regular expenses, including rent, mortgage payments, bills, and groceries. This will help you avoid overdraft fees and ensure you can cover unexpected costs without dipping into your savings.
How does that look in real figures? Well, let’s say your monthly household expenses add up to $7,000. You’d want to keep up to $14,000 in your account to manage unexpected expenses.
Here’s how that would look for different monthly expense bills:
If your income is stable and direct deposits are regular, you may be able to keep a smaller balance in checking and move extra funds to savings or investments for better returns.
However, be sure you consider any minimum balance requirements from your bank so you avoid low balance fees. Look for a checking account with a low minimum balance for maximum flexibility. There’s a big difference between a checking account that requires a $5 minimum balance versus one that requires $100!
If you have limits on how often you can transfer money from your checking or money market accounts, you’ll want enough of a cushion in your checking account to keep those transfers to a minimum. Your regular spending shouldn’t require you to make transfers from other accounts.
Also, remember to take your direct deposit and other regular payment schedules into account when determining how much you should keep in your checking. If you have a biweekly salary direct deposit that processes fairly quickly, you might be able to get away with having a little less in your checking account.
Although it’s important to have enough in your checking account to cover your expenses, it is sometimes best to keep extra funds elsewhere. Here’s why:
Checking accounts traditionally don’t usually offer much — if any — interest. Usually, your funds are more productive in other accounts that offer higher returns, such as savings, money market, or retirement accounts. You risk missing out on interest or dividends if you keep too much money in your checking account.
That said, some checking accounts now offer significant interest or dividend payments that can offer higher yields on your “working” cash. Those earnings can be significant.
The following table shows how $10,000 invested in a high-yield checking account will increase over 12 months compared with a regular checking account.
As you can see, the high-yield account earned more than $1,700 in interest over a year. That’s a strong argument for keeping more cash in a high-yield checking account like Baton Rouge Telco’s high-yield Premier Interest Checking Account, rather than other, less flexible, accounts.
If you lose your debit card or your card number is stolen, for example, it’s very easy for someone else to use it. That could result in high losses due to fraudulent charges, and you might even be held responsible for paying those charges if you don’t catch them promptly.
Fraudulent charges from your account are fairly easy to notice and resolve, but it is still a risk.
By limiting the amount of money you keep in your checking account, you keep your potential losses to a minimum.
If you choose not to let your excess funds sit in a high-yield checking account, there are several ways to put them to good use in other types of accounts.
A savings account offers a secure place to keep money you do not currently need while keeping it close in case conditions change. It’s a good place to build up an emergency fund. This is the equivalent of 3-6 months of expenses to tide you over in case of an unforeseen accident, emergency, or loss of income.
Pros: Safe, steady growth with interest rates generally higher than those you’ll find in a traditional checking account. Easy access to your cash if you need it.
Cons: Limited number of transactions per month. Interest rates tend to be higher than traditional checking, but lower than many other savings options.
Here’s how $500 invested in a savings account will perform over a year compared to a typical traditional checking account.
Money market accounts operate similarly to savings accounts but generally require a minimum balance of $500 or more to avoid minimum balance charges. In return, you’ll usually get a much higher interest rate, plus enhanced banking services such as check-writing privileges or even a debit card.
Pros: Steady growth with significantly higher interest than traditional savings accounts. Sometimes offer checking privileges or a debit card.
Cons: High minimum balances to open an account and earn interest or dividends. Limited number of transactions per month.
Here’s how $2,500 invested in a money market account will perform over a year compared to a typical traditional savings account.
Certificates of deposit or share certificates are term investments rather than deposit accounts. Unlike checking and savings accounts, you contribute an amount for a set period in return for a guaranteed dividend at an agreed payout date.
Certificate accounts are offered by most credit unions and banks, with a minimum contribution usually around $500. With terms ranging from just a month or two to up to five years, it’s a safe and predictable way to grow your savings, especially when you opt to reinvest your earnings at the end of each payment cycle.
Pros: Higher interest rates. Fixed, guaranteed returns over a variety of terms. Principal and earnings are insured by the federal government.
Cons: Opening deposits are higher than traditional savings accounts. Money is unavailable to you during the term unless you pay a significant fine.
Here’s how the same amount of money invested in a range of different certificate products offered by Baton Rouge Telco performs over their various terms.
It’s wise to begin putting at least some money aside for your retirement as soon as you can. Individual retirement accounts (IRAs) offered by credit unions and banks enable your money to grow in a savings account and offer significant tax advantages over time.
Credit unions, in particular, allow you to put your retirement savings into IRA Certificates, which invest and reinvest your contributions, offering safe and predictable gains as well as all the tax advantages offered by other types of IRA.
Pros: Build wealth by reinvesting in certificates. Take advantage of tax savings by paying tax either upfront or at the time of withdrawal depending on your circumstance.
Cons: As with all IRAs money is usually unavailable until you reach the age of 59½. IRAs may deliver lower returns than money invested directly on the stock market.
Here’s how certificates of different lengths help build retirement savings by continuously reinvesting your earnings for 10, 25, and 35 years. This measures only the effects of a single contribution. You would ideally contribute more to the IRA every month.
It is also possible to invest your money directly in stocks, bonds, or securities. These investment vehicles offer both dividend payments while you hold them as well as a potential cash gain when you choose to sell.
You could earn far more in dividends than you would keeping your money in a bank account, but your earnings and principal are not guaranteed, as they are in bank or credit union accounts and certificates backed by the FDIC and NCUA respectively. That means there is a real chance you could also lose money on your investment trades.
Pros: Earn far more in dividends and increased asset value over time than guaranteed savings products. Sell and reinvest as you see fit, no waiting for your funds.
Cons: You risk losing both your earnings and principal if prices drop and you are forced to sell. Funds require active management through a fee-charging brokerage.
Use the following table to compare different types of accounts and their best uses to determine which product works for your money needs.
In the end, the products you choose for your portfolio depend on both your short-term and long-term personal finance goals. Here are some common money scenarios and the best account mix to handle them.
It’s important to always have the right mix of financial products for where you are in life. No matter your stage, you’ll find an affordable traditional checking account or high-yield interest-paying account are powerful tools for making the most of your resources.
Only locals know what a great place Baton Rouge, Louisiana is to put down roots. With lower prices at the supermarket checkout and some of the most affordable housing in the nation, it’s a perfect place to settle down and start a family. And that doesn’t even include some of the best southern BBQ you’ll find anywhere.
Whether you’re starting out or beginning something big, Baton Rouge Telco is here for you with smart products that help your money go further. That includes our affordable Elite Checking Account as well as our high-yield Premier Interest Checking Account.
Take your pick of low minimum balances, generous dividend rates, and quick settlement of your direct deposits so you can get on with life. Whether you’re saving, building, or securing your future, a Baton Rouge Telco checking account is a great way to start.
Click below now to get started with opening the right checking account for you!
How to Open a Checking Account
*APY = Annual Percentage Yield. Dividend rates are subject to change without notice. Dividends are posted monthly based on the daily balance and compounded monthly. Baton Rouge Telco Federal Credit Union Share Certificate rates are variable rate accounts and are subject to change at any time. Rates are not guaranteed. Penalties for early withdrawals may apply. Fees may reduce earnings on the account.
Federally insured by NCUA. Your savings federally insured to at least $250,000 and backed by the full faith and credit of the United States Government – National Credit Union Administration (NCUA), a U.S. Government Agency.
