Almost everyone has a checking account, but the amount of money people keep in their checking accounts varies widely. Checking account balances vary by income, age, and other factors. Determining how much money to put into your personal checking account requires looking beyond your paycheck and birth certificate. Here’s what you need to know.
If you need additional financial assistance beyond testing, a Financial advisor He can work with you to plan your savings and investments.
Understanding the role of checking accounts
With most people Checking accounts Use them regularly for expenses, often several times a day. Tap money into their accounts using debit cards, online transfers, automatic drafts, ATM transactions, cash withdrawals and old paper checks.
Checking accounts are tools, not investments, but they are some of the most well-worn items in everyone’s financial kit. From paying the rent and buying groceries to gassing up the car and keeping the electricity on, they perform countless critical financial tasks.
Obviously, you don’t want your checks to bounce because that will cost you Overpayment. Perhaps somewhat obviously, you don’t want to put more money into screening than necessary. That’s because most checking accounts don’t pay interest on the balance. Interest bearing checking accounts They generally pay less than other accounts and investments.
With all this in mind, what is the correct checking account balance? No one answer fits everyone. Some people want more, some less. But it’s relatively easy to figure out your own checking account balance if you research the relevant factors.
What is a typical checking account balance?
of Average checking account balance It’s about $9,100, but that may not be the right number for everyone. For one thing, that average is inflated by a relatively small number of people maintaining large balances. The median, the point where half of the people have more and half less, is about $2,900.
Examining account holders behind those broad dimensions, you can find differences around individual characteristics. Not surprisingly, high earners tend to have larger checking account balances.
Less obvious, perhaps, is that as people get older, checking account balances tend to increase, peaking at ages 65-74. The takeaway here is that whatever figure you decide on is your ideal checking balance, be prepared to revise it as you age or start earning more.
What is the correct checking account balance?
The theoretical amount may seem like the right amount to cover any expenses until your paycheck, investment dividend, monthly government or pension benefit, or other source of income arrives. That means avoiding any overdraft fees and never leaving a penny more than you need in a no- or low-interest savings account.
But there is much more to this calculation. Also consider:
Unexpected Expenses – If you don’t account for irregular car payments such as semi-annual insurance premiums, you may end up paying overdraft fees and overdraft fees.
Pre-authorization Held – Some merchants will hold a portion of your funds until the transaction clears, which can reduce the funds in the account. A good balance will help prevent this from leading to an overpaid account.
Small Account – Many checking accounts charge Monthly maintenance fees If your balance falls below a certain amount. To avoid these fees, it can be very beneficial to keep enough in the account so that you can always meet the minimum.
Emergencies and specials – From getting essential supplies due to natural disasters to buying from a small local merchant at the farmer’s market, some situations require cash, not a loan.
Lost Earnings – While some checking accounts pay interest on cash balances, most do not and pay less than alternative accounts such as high-income savings accounts; Money market accounts Or Certificates of deposit. Over time, it can cost you significantly more to keep in check than you need.
Complicating matters is the account type. For example, some checking accounts require a minimum or no minimum fee. Basic or about your bank Student accountsYou may be able to identify some of these and not worry too much about having a low balance.
Consider it to help you stay on balance and manage it for the better Budgeting applications Monitor your expenses. This is essential information to determine a good checking account balance.
If that’s all too complicated, a general tip is to keep one to two months worth of living expenses in your checking account. Some experts recommend adding an extra 30% as a cushion, although that may be light and more than most people need.
The correct checking account balance will vary depending on individual circumstances and the need to balance competing risks. At the very least, you want to have enough room in there to avoid bad checks and overdrafts and their associated fees and other hassles. But you don’t want to go overboard by avoiding fees, because then you’re missing out on money you could have saved in an interest-bearing account or investment.
Financial planning tips
Review your finances regularly and consider consulting a financial advisor if you see something you don’t understand or aren’t sure what to do. SmartAsset’s free tool It matches you with up to three vetted financial advisors who serve your area, and you can make a free introductory call with your advisor matches to determine which one you feel is right for you. If you’re ready to find an advisor to help you achieve your financial goals, Start now.
Why invest your money in something less than the best? SmartAsset is regularly updated Best checking accounts Features lists, describes and provides links to the top search accounts on the market.
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