How Much Money Should I Keep In Savings vs. Checking? (2024)

How Much Money Should I Keep In Savings vs. Checking? (1)

How much money should I keep in my savings account?This is a valid question to ask if you’re interested in making the most of your money. Savings accounts can offer liquidity, so you have convenient access to your money. And you might be able to earn a decent interest rate on deposits, depending on where you choose to bank. There are several factors to keep in mind when deciding how much to keep in savings.

For help with saving in the most efficient way, consider working with a financial advisor.

What Is a Savings Account Good For?

Savings accounts are designed to be a safe, secure place to hold money that you plan to spend at some future date. You can use savings accounts to fund a variety of financial goals. Some of the most common uses for savings accounts include:

You can open a savings account at traditional banks, online banks and credit unions. Savings accounts can earn interest and the rate you earn typically depends on where you open the account. Online banks tend to offer higher rates than brick-and-mortar banks and they can also charge lower fees.

A savings account is liquid since you can withdraw money from it as needed. You can link savings to checking for convenient transfers. Keep in mind that your bank might limit the number of withdrawals you can make from a savings account each month. If you go over the limit, the bank may charge you an excess withdrawal fee.

Money in a savings account is safe when the account is held at an FDIC member bank. The FDIC insures savings accounts and other deposit accounts up to $250,000 per depositor, per account ownership type, per financial institution. The National Credit Union Administration offers similar coverage for savings accounts held at member credit unions.

How Much Money Should I Keep in My Savings Account?

There is no one-size-fits-all answer to the question of how much money to keep in savings. The amount of money you keep in savings can depend on your financial situation and what you’re saving money for.

For example, your financial advisor may recommend keeping three to six months’ worth of expenses in savings for an emergency fund. An emergency fund is for the money you can tap into when you have an unexpected expense or life situation that you didn’t budget for. So if your car breaks down or you lose your job, your emergency fund could help to fill the gap temporarily.

If you make $5,000 a month, then the right amount of money to keep in savings for emergencies would be anywhere from $15,000 to $30,000 if you follow the three to six-month rule. It’s possible that you might want a larger cushion, however, if you’re worried about how you might cope with an extended bout of unemployment or a serious illness that keeps you from working.

In that case, you might bump your savings target between nine and 12 months’ worth of expenses instead. So you’d need to have $45,000 to $60,000 in emergency savings.

The amount of money you should keep in non-emergency savings will depend on what you’re saving the money for. In other words, the amounts are goal specific. If you want to save $20,000 for a wedding, $3,000 for new furniture and $2,000 for a vacation, for example, then your total savings goal is $25,000.

How Much Money Should I Keep In Savings vs. Checking?

How Much Money Should I Keep In Savings vs. Checking? (2)

Savings accounts are meant to hold money that you don’t plan to spend right away. A checking account is designed for the money you know you’ll spend in the near term. Checking accounts can give you access to your money via a debit card and checks. You can use either one to pay bills, make purchases and cover day-to-day expenses.

How do you decide how much money to keep in savings vs. checking? And should you keep a lot of money in a checking account?

The answers will depend on the kind of savings and checking accounts you have. If you have an online savings account that offers a highly competitive APY and charges no monthly fee, then it could make sense to keep more of your money in that account. Keeping all of your emergency funds in a savings account is generally advisable as well since it may be easier to spend it on things other than emergencies if it’s sitting in a checking account.

A good rule of thumb you could apply when deciding how much to keep in savings is to aim for one to two months’ worth of expenses. So again, if you make $5,000 a month then you’d want to keep $5,000 to $10,000 in checking.

Having that amount in checking at all times means you have a cash cushion in place. If your paycheck is delayed for some reason or you run a business that has irregular cash flow, you can use your checking account cushion to cover bills until more money comes in. A cushion can also help you to avoid steep overdraft fees. And if you have an interest checking account, you can earn a little interest on your balance as well.

Is $20,000 a Good Amount of Savings?

Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you’ll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation. For example, you might quickly run through that amount of money if you get sick or laid off and are out of work for six months.

Finding the right amount of money to keep in savings means understanding your expenses and how much you’d be able to realistically live on if your income were to dry up. It also takes into account the kinds of one-time emergency expenses you’re more likely to have.

If you have pets, for instance, then it’s possible you might need to drop $5,000 at the vet if one of them gets sick. Or if you have an older car you may end up spending more on unanticipated repairs than someone with a newer vehicle. Looking at the bigger picture can help you decide how much to keep in savings and what to allocate to checking.

How Much Cash Is Too Much In Savings?

You might have too much cash in savings if part of your balance isn’t covered by FDIC insurance. Again, the coverage limit is $250,000 per depositor, per account ownership type, per financial institution. If your combined balances at the same bank exceed this limit, part of your savings may not be protected. That could mean losing money in the rare event that your bank fails.

Having too much cash in savings can also be a drawback if that money is not working as hard for you as it could. Savings accounts can earn interest but the rates are generally well below the rate of return you could earn by investing your money instead, or even putting it in a certificate of deposit. Keeping all of your money in savings can help you avoid the risk of losing money in the market, but it could drastically affect the amount of growth you see over the long term.

The Bottom Line

How Much Money Should I Keep In Savings vs. Checking? (3)

Deciding how much money to keep in a savings account is a personal decision and there is no single dollar amount to go by. Instead, figuring out how much to save means looking at where you are financially and factoring in any situations that might affect your budget and ability to pay bills.

Savings Tips

  • Consider talking to your financial advisor about how much to keep in savings and what to do with any surplus. Your advisor can help you decide whether it makes sense to invest extra cash, use it to pay down debt or fund another goal. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • If you’re looking for a new savings account, take time to weigh what you need and compare the options. As mentioned, online banks can offer favorable rates with fewer fees but the trade-off is that you don’t have branch banking access. In addition to the rates and fees, consider the minimum deposit requirements for opening a savings account.

The post How Much Money to Keep in a Savings Account appeared first on SmartAsset Blog.

How Much Money Should I Keep In Savings vs. Checking? (2024)

FAQs

How Much Money Should I Keep In Savings vs. Checking? ›

Savings Account. Aim for about one to two months' worth of living expenses in checking, plus a 30% buffer, and another three to six months' worth in savings.

How much cash should you keep in checking vs savings? ›

Savings account: 2 to 4 months of expenses

After allocating one to two months of your expenses into a checking account, Anderson says that the two to four months of additional reserves should be put into a savings account — specifically a high-yield savings account.

How much money should I keep in my savings account? ›

Most financial experts suggest you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000. Personal finance guru Suze Orman advises an eight-month emergency fund because that's about how long it takes the average person to find a job.

Should I keep more in savings or checking? ›

Maintaining higher balances in checking can put you at a disadvantage if you're not earning any interest on your money. If you have more than two months' of expenses in a basic checking account, you might consider shifting some of that over to savings.

How much money should you keep in your checking account group of answer choices? ›

The general rule of thumb is to try to have one or two months' of living expenses in it at all times. Some experts recommend adding 30 percent to this number as an extra cushion.

How much money do millionaires keep in a checking account? ›

“Millionaires' checking accounts are all over the place,” Thompson said. “Some clients will only keep enough to pay for immediate expenses (e.g., $10,000) and others will have $150,000 in checking on any given day.” Why do millionaires approach their checking accounts so differently and across the board?

Is 20K in savings good? ›

While $20K may not let you quit your job, it's enough to start building financial security, whether you max out your retirement accounts, invest in fine art, or divide your cash between multiple investments.

Is $1,000 a month enough to live on after bills? ›

Bottom Line. Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.

How much does the average person have in their checking account? ›

Average household checking account balance by gender
Gender of reference personAverage checking account balance in 2022Median checking account balance in 2022
Male$20,221.19$3,800.00
Female$8,272.74$1,200.00
Oct 18, 2023

How much does the average person keep in savings? ›

In terms of savings accounts specifically, you'll likely find different estimates from different sources. The average American has $65,100 in savings — excluding retirement assets — according to Northwestern Mutual's 2023 Planning & Progress Study. That's a 5% increase over the $62,000 reported in 2022.

How much is too much money in a checking account? ›

Unless your bank requires a minimum balance, you don't need to worry about certain thresholds. On the other hand, if you are prone to overdraft fees, then add a little cushion for yourself. Even with a cushion, Cole recommends keeping no more than two months of living expenses in your checking account.

How much is too much in savings? ›

So, regardless of any other factors, you generally shouldn't keep more than $250,000 in any insured deposit account. After all, if you have money in the account that's over this limit, it's typically uninsured. Take advantage of what a high-yield savings account can offer you now.

How much is too much to keep in the bank? ›

How much is too much savings? Keeping too much of your money in savings could mean missing out on the chance to earn higher returns elsewhere. It's also important to keep FDIC limits in mind. Anything over $250,000 in savings may not be protected in the rare event that your bank fails.

What bank do most millionaires use? ›

The Most Popular Banks for Millionaires
  1. JP Morgan Private Bank. “J.P. Morgan Private Bank is known for its investment services, which makes them a great option for those with millionaire status,” Kullberg said. ...
  2. Bank of America Private Bank. ...
  3. Citi Private Bank. ...
  4. Chase Private Client.
Jan 29, 2024

How much cash should I keep at home? ›

It's a good idea to keep enough cash at home to cover two months' worth of basic necessities, some experts recommend. A locked, waterproof and fireproof safe can help protect your cash and other valuables from fire, flood or theft.

How much bank account should a person have? ›

There's no one correct answer, but it's usually best to start with at least two accounts—a checking account and a savings account. This gives you an everyday banking account for bills and other expenses and another for saving. Your bank account journey doesn't need to end there.

What percentage of my money should I keep in cash? ›

Cash and cash equivalents can provide liquidity, portfolio stability and emergency funds. Cash equivalent securities include savings, checking and money market accounts, and short-term investments. A general rule of thumb is that cash and cash equivalents should comprise between 2% and 10% of your portfolio.

How much cash does the average person have in savings? ›

In terms of savings accounts specifically, you'll likely find different estimates from different sources. The average American has $65,100 in savings — excluding retirement assets — according to Northwestern Mutual's 2023 Planning & Progress Study. That's a 5% increase over the $62,000 reported in 2022.

What is the 50 20 30 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.

Is it a good idea to keep savings in cash? ›

Investing gives you a better chance to grow your money in the long term. Once you're putting money away for 5 years or more, cash is rarely the best option. Inflation is the general rise in prices of the stuff we pay for every day. The cash we have today won't have the same buying power tomorrow.

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