Is $10,000 Too Much Money to Keep in Your Checking Account?

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You don’t want to overfund your checking account. Here’s how it could cost you big time. [[{“value”:”

There’s a reason so many people sign up to have their paychecks directly deposited into their checking accounts. If you use that account to pay your living expenses, then it makes sense to have money landing in there at all times.

It’s also a good idea to keep a little extra money in your checking account beyond what you might need for monthly bills. There may be a month when your grocery bills are slightly higher, or when your electric bill costs more than expected. If you have that extra cash in your checking account already, you won’t have to worry about coming up with the money or doing a last-minute transfer from your savings account.

But while it’s smart to keep a bit of extra money in a checking account, you don’t want to go overboard, even if you have one of the best checking accounts. If you’re sitting on a checking account balance of $10,000, it may be overkill.

How much money should you keep in your checking account?

As a general rule, you should keep up to two months’ worth of bills in a checking account. That way, you have some wiggle room in case your expenses come in higher, or in case there’s an issue with getting your next paycheck out on time.

If you normally spend $5,000 a month and decide to keep $10,000 in your checking account, that makes sense. But if your monthly bills come to $3,500, you probably don’t need more than $7,000 in that account at any given time — not if you have a solid emergency fund to fall back on in your savings account.

Your emergency fund should have enough money to cover at least three months of essential bills. That’s to get you through a period of unemployment, or to cover a large unexpected bill, like a home or car repair.

But since your emergency fund is not money you’re expecting to spend right away, you might as well earn some interest on it. While some checking accounts pay interest, you’re likely to earn a lot more interest in a savings account — especially if you shop around for the right one. Click here for a list of the best savings accounts today.

Places to keep extra money outside of a checking account

It’s perfectly fine to pad your checking account beyond what you need for a single month of bills. But in many cases, $10,000 is too much money to keep in a checking account.

If you have extra money in your checking account today, and your emergency fund is also complete, here are some other options you can consider:

A CD: The nice thing about a CD is that it allows you to lock in a guaranteed interest rate on your money for the duration of the CD term. With a savings account, your interest rate isn’t guaranteed. Click here for a list of the best CD rates available today.A brokerage account: With a brokerage account, you can invest your money in stocks and other assets that have the potential to gain a lot of value over time. The S&P 500’s average annual return over the past 50 years is 10%, much higher than even the top CD rates today. Click here for a list of the best brokerage accounts.An IRA: If you have money you’re looking to invest for retirement, an IRA (individual retirement account) is a great place to put it. You may get a tax break on the money you contribute, and you don’t pay taxes on investment gains until you take withdrawals. Click here for a list of the best IRAs.

Ultimately, the right checking account balance to maintain will depend on your personal expenses. But if $10,000 is well beyond what you need for two months of bills, then it’s probably time to move some of your money into one of the options above.

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