How Much Money Should I Keep in my Checking and Savings Account?
Your checking and savings account are the meat and potatoes of your everyday money management. It’s where you keep money for bills and emergencies, and it’s also where you save up for a rainy day or a luxury vacation. But how much money should you be actively keeping in each of these accounts? While many people believe the more money in these accounts, the better, the truth is a lot more complex. Let’s take a closer look at checking and savings accounts and how to keep them optimally funded.
Checking accounts are designed to be used for everyday expenses. They’re generally the most accessible accounts at financial institutions and feature several ways to access your money, including ATM withdrawals, paper checks, debit cards and online bill payments. Many checking accounts have no account fees associated to them or have a minimal balance requirement. Most financial experts recommend keeping your checking account padded with one- or two-months’ worth of living expenses. Some suggest adding another 30% to this amount as well. Here’s why it’s a good idea to keep extra funds in your checking account.
- Avoid overdrafts. It’s easy to miscalculate a week’s spending and end up with an overdrawn account. With an extra buffer of funds in your account at all times, you can avoid being hit with the fees and stress that come from an overdrawn account.
- Provide a cushion for pre-authorization holds. Many merchants, like those that operate fuel pumps and hotels, place authorization holds on debit cards before a transaction is completed. These holds can reduce the amount of available funds in a checking account by as much as $100. Keeping extra money in your account helps cover these holds without running the risk of an empty account.
- Keep funds available for emergencies. As your transactional account, it can be helpful to have extra cash for holding you over in an emergency, or for a vendor that does not accept other forms of payment, before accessing funds in a savings account.
Looking to open a new checking account? Partner Colorado offers a wide variety of checking account options, including our Elevated High-Interest Checking which gives you the opportunity to earn high interest.
A savings account is the starting point to reaching your financial goals. Savings accounts are designed to hold larger sums of money that you can access quickly and easily. One main difference between a savings account and checking account is the amount of interest earned. Typically, a savings account always earns compound interest over time. This means you earn interest on both the money you put in the account and the interest you earn on the account. In most cases, putting your money in a savings account means your money has a better chance to grow. However, as mentioned previously, some checking accounts do provide the opportunity to earn interest like our Elevated High-Interest Checking Account. Before opening either a savings or checking account, be sure to check if it earns interest and at what rate. In comparison to other long-term savings accounts, such as a Certificate of Deposit (CD) or Money Market account, the funds in a savings account are more accessible. If you do need to make a withdrawal, you can visit a branch location to do it in person or use an ATM. You can also transfer funds to another account or use it for bill pay. Financial experts recommend keeping three to six months’ worth of living expenses in a savings account at all times. This will help keep you afloat in an emergency or a prolonged change in financial circumstances. A well-funded savings account is a great safety net to have.
If you don’t already have this amount saved up, here are steps you can take to build your emergency fund today.
- Make an estimate of how much money you need to live on for three or six months to establish your savings goal.
- Look for ways you can trim your discretionary expenses each month.
- Consider various opportunities for beefing up your salary until your emergency fund is built. For example, you can freelance for hire, consult in your industry or drive for rideshare companies, like Uber and Lyft, on weekends.
- Using your end goal and the amount of funds you can realistically save each month, create a savings plan.
- Make an automatic monthly transfer from your checking account to your savings account so you never forget to feed your savings.
Of course, if you don’t already have one, you’ll need to open a savings account to get started on your healthy savings habit. Learn more about Partner Colorado’s savings accounts and current rates. Your checking and savings accounts set the foundation for your financial health. Use the tips outlined here to learn how to keep them optimally funded at all times.