Bank accounts can make paying bills and managing spending easier. And a savings account provides a convenient place to keep cash you may need to tap in an emergency.
But how much money should you keep in checking and savings? Is it possible to have too much cash in the bank? Finding the right balance is key to managing your bank accounts.
How Much Cash Does the Average Bank Account Have?
When figuring out how much cash to keep in the bank, it helps to have some perspective on how other people approach it. According to Federal Reserve data, 98% of American households had at least one transaction account in 2019. Transaction accounts include:
- Checking accounts
- Savings accounts
- Money market accounts
- Call deposit accounts, for investment funds
- Prepaid debit cards
The mean or average value of those accounts was $42,000 in 2019. The median value was $5,300. This means that if you take out the high end and the low end of bank account balances, the typical person landing in the middle keeps just over $5,000 in cash in those kinds of accounts.
One thing to keep in mind is that these numbers don’t include people who are unbanked or underbanked, which includes 22% of American households. The unbanked and underbanked either don’t have bank accounts at all, or they rely on alternative financial products and services.
How Much Cash Can You Keep in the Bank?
Banks and credit unions can impose limits on the amount of money you can keep in a checking, savings, money market or CD account. These limits can be imposed per account or as an aggregate across all your accounts. For example, you might be capped at a $1 million limit for a single deposit account and a total maximum of $3 million across all of your accounts.
Depending on your bank, the limits may be higher, lower or nonexistent. If you’re unsure whether your bank limits how much cash you can keep in your accounts, this should be spelled out in your account or customer agreement.
Aside from the bank’s limits, however, there are other limits to keep in mind. Specifically, this means the limits imposed by the Federal Deposit Insurance Corporation (FDIC). These guidelines can influence how much cash you decide to keep in the bank at any given time.
FDIC Limits and Bank Account Balances
The FDIC insures deposits for banks, including brick-and-mortar banks and online banks. Not every bank participates in FDIC insurance and not every account type is covered. But the FDIC does insure:
The standard insurance amount provided for FDIC-insured accounts is $250,000 per depositor, per insured bank, for each account ownership category, in the event of a bank failure. For example, if you have a checking account, savings account and a money market account at the same bank that are all owned by you and you alone, the combined balances for those accounts would be insured up to the “per depositor” $250,000 limit.
If, at the same bank, you also have a joint account that you share with a spouse or other person, then applying the “per ownership category” part of the FDIC coverage definition, another $250,000 coverage limit applies to your half of the funds in that joint account.
Anything over that amount would exceed the FDIC coverage limits. So if you keep more than $250,000 in cash at a single bank, then you potentially run the risk of having some of those funds be unprotected if your bank fails. The good news is that bank failures are generally rare; there were just four bank failures in 2020.
If you’re trying to decide how much cash to keep in the bank, you could use both your bank’s account limits and the FDIC limits as a starting point. Remember that these limits are applied at the individual bank level. If you have more than $250,000 to keep in cash at the bank, you could open multiple accounts at different banks to spread those funds out. This could make it easier to stay under any bank-imposed account limits, as well as the FDIC coverage limits.
What’s a Good Amount to Keep in a Checking Account?
Checking accounts allow you to pay bills electronically or by writing checks. When your checking account comes with a linked debit card, you can use it to make purchases online or in person. And you can link a checking account to a savings account to make transferring funds between the two quick and easy.
But what is a good amount of money to keep in your checking account? The answer can depend on several things including:
- How you budget your money each month
- Whether your checking account allows you to earn interest on balances
- What your bank charges for checking account fees
Let’s consider the budget angle first. Say you budget by paycheck, for example, and are paid biweekly. To help ensure that your bills are paid, you’d need to keep at least half a month’s worth of expenses in your checking account to cover yourself until the next payday. If you want to create a wider buffer, you might increase that to a full month’s worth of expenses or even two.
Next, consider whether your bank offers an incentive to keep more money in checking in the form of interest earnings. While interest-bearing checking accounts are less common than standard checking accounts, quite a few banks offer them.
The interest rate you could earn may not be as much as you’d get with a savings or money market account, but it’s essentially free money you get just for keeping cash in checking. That’s something that could motivate you to keep more money in your checking account.
In some cases, the decision to keep more cash in checking is all about avoiding a fee. At traditional banks, for instance, it’s common to have a monthly maintenance fee for checking accounts. But you may be able to avoid this fee by maintaining a minimum balance in checking or a minimum combined balance across all your bank accounts.
How Much Cash Should You Keep in Savings?
Savings accounts are typically designed to hold money you don’t plan to spend right away. This could be money you need for a short-term goal, such as planning a vacation, or a longer-term financial goal, like buying a home. And savings accounts or money market accounts are also helpful for stashing away your emergency fund until you need it.
If you’re opening a savings account for a specific goal, such as a vacation, buying a home or planning a wedding, the amount you’d keep in it would be dictated by that goal. For instance, you may need to save $3,000 for a trip, $10,000 for a new-to-you car or $20,000 for a wedding. But emergency funds don’t necessarily have a set number you should aim for.
That’s because everyone’s rainy day fund needs are different. So how much cash should you keep in a savings account or money market account for emergencies?
One rule of thumb often recommended by financial experts is keeping three to six months’ worth of expenses in emergency savings. So if your monthly expenses are $3,000, then you’d want to have between $9,000 and $18,000 in a savings or money market account that’s readily accessible when you need it.
But what if your expenses or income fluctuates month to month because you’re self-employed or do gig work? In that scenario, you could use the average of your monthly spending as a guideline. According to the Bureau of Labor Statistics, the average American household spent $63,036 in 2019. That’s $5,253 per month. If you were to use that number as a baseline, the amount of cash you’d need to keep in the bank for emergencies would range from $15,759 to $31,518 if you’re saving up three to six months’ worth of expenses.
The more you can pare back your budget and spending, the less money you may need to keep on hand. But consider how long a financial emergency might last. In March 2020, what seemed like a temporary crisis specific to Covid-19 was only beginning. Nearly a year later, many Americans have exhausted their emergency savings because of the financial strain created by the coronavirus pandemic.
If you’re worried that a financial emergency could stick around, you might consider increasing your emergency savings to nine or 12 months’ worth of expenses instead.
Choose Bank Accounts Wisely
When keeping cash in the bank, whether it’s a larger amount or a smaller one, it’s important to make sure you’ve got the right account for your needs.
With a checking account, for instance, consider things like minimum balance requirements, monthly fees and whether you can earn interest. These same things matter with savings accounts, money market accounts and CD accounts. Checking the annual percentage yield, or APY, for deposit accounts is particularly important when banks are slashing interest rates.
When rates for deposit accounts are falling across the board, you shouldn’t abandon saving altogether. Instead, you should carefully compare traditional and online banks to find the best interest rates for checking, savings, money market and CD accounts. Online banks can offer higher rates than brick-and-mortar banks, which you can benefit from, once rates begin to rise again.