How much money should you keep in your checking account?

What’s a checking account?

Just like regular accounts, a checking account is one you create with a bank or a credit union, which allows you to perform regular transactions like deposits, withdrawals, and payments. However, unlike other accounts, the funds in a checking account are always liquid – which means that it can be retrieved and spent instantaneously.

With that being said, many checking accounts are quite easy to create, and they make your everyday spending easy to manage and track. Regular bill payments, ATM withdrawals, and utility are some of the many transactions you can easily perform with the liquid cash in your checking account. When you have enough funds in your checking account, it becomes relatively easy for you to make your regular payments on time, have access to cash whenever you need one, and prevent the possibility of you becoming cash strapped. With all these features and advantages, does it then mean that one has to stow away all their funds in a checking account? Far from it! Since you wouldn’t be living from hand to mouth, there is no point keeping all your money in a checking account. In fact, it is even advisable for you to keep your excess funds in a higher-yield savings account, while your checking account takes care of your everyday expenses.

This then brings us to the question:Well, this is a very subjective question, one that varies from one individual to another depending on what their daily expenses are. However, having the right amount of money in your checking account can make all the difference between you being in a strong financial position and you running out of cash. Remember, expenses are parts of our daily obligations, which means you need to be prepared for what you need every day and even emergencies too. Having less than what you need to run your day in your checking account could mean that you have to pay extra fees, charges, or at the very worst, run into debt – which is the last thing you want to do even if you have the best list of IVA companies around you. With the help of the following few factors, we will now help you understand how much you need to keep in your checking.

Minimum balance requirement

One of the few requirements of a checking account is that you have to keep a minimum daily balance, which could be as low as $5 or could even go as high as $1000. In order to avoid being charged a fee or account closure, it is always vital for a checking account user to meet this minimum balance. Even if your bank doesn’t clearly state what the minimum is for you, be sure to check their general minimum balance for your account type.

Helps you avoid overdraft

Besides the minimum balance expected of you by your financial institution, it is always a good idea to keep a little extra in your account, so as to act as a cushion against overdrafts. An overdraft happens when you make a purchase that costs more than what you have in your account. Remember, a checking helps you control your daily expenses, but when you don’t have enough in your account to make a certain purchase, you will have to overdraft. And the bad side of overdraft is that most banks and credit unions usually charge a fee for an overdraft, which can be as much as $20 or even more.

Enough to cover utilities

Utility is a part of what makes us tick as humans. However, they don't come for free, which means you have to pay for them via what we all know as a "utility bill." Most people love to set up an automatic monthly payment for utility bills such as electricity, water, gas, rents, and lots more. But the issue is that some of these bills are not fixed; for instance, your gas bill could be higher or lower than usual in a certain month, which means you can’t accurately predict how much you will need to spend on such utility. Having a buffer in your checking helps ensure that you always have enough to cover all your bills whether they rise or not.

Everyday Expenses

If you don’t really know how much you need to spend every day, get a digital app to help you track your daily expenses. This will give you an insight into how much you need to keep in your checking against your daily expenses. In fact, many experts suggest that keeping one or two month’s worth of spending dollars in your checking account.

Not all of your savings

Even though you want to keep as much funds as you will need in your checking account, it's always advisable not to stow away all that you've got into one account. Try saving your money towards retirement, keep them in an emergency fund, and if you don't feel like saving it, be sure to invest it; at least that way you will be getting something in return.

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The New Indian Express
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