How Much Cash Should You Keep In The Bank? (2024)

Bank accounts can make paying bills and managing spending easier. And a savings account provides a convenient place to keep cash you may need 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.

The 50/30/20 Rule

How you decide to budget your money can influence the amount of cash you keep in the bank. The 50/30/20 rule is one of the most popular methods for budgeting by percentages. This budget rule advocates allocating your money into three categories:

• 50% to needs
• 30% to wants
• 20% to savings and debt repayment

“Needs” are all of the expenses you need to pay to maintain a basic standard of living. That includes housing, utilities and groceries among other essentials. “Wants” comprise everything you spend money on that isn’t necessary, such as dining out or entertainment. The final category covers money you direct to savings accounts or debt repayment.

Using the 50/30/20 budget method, the 20% you allocate to savings could all go to a bank account. You might use this money to build an emergency fund in a high-yield savings account or save toward another short-term goal.

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 $1 million for a single deposit account and $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 on your bank’s website or customer agreement. You can also call the bank to ask whether any limits on deposits exist.

How Much Should I Keep in Checking?

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 easily transfer funds between the two.

But what is a smart 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 can increase that to a full month’s worth of expenses or even two months.

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 pay 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.

It could also make sense to keep a buffer in checking if you’re worried about incurring overdraft fees. Overdraft fees are triggered when your balance dips into the negative. Keeping an extra $500 or $1,000 in checking, on top of the amount you normally keep in your account, can give you a cushion against costly overdraft fees.

How Much Should I 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 in case you need it.

If you open a savings account for a specific goal, such as a vacation, a wedding or the purchase of your first home, the amount you’d keep in it would be determined 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.

Setting a budget for each savings goal can help you decide how much to save. You can then open multiple savings accounts for each goal or, if your bank allows it, a single savings account that lets you create subaccounts. You can then divide your savings budget to fund each subaccount at a pace that works for you.

How Much Cash Does the Average Bank Account Have?

When figuring out how much cash to keep in the bank, it helps to know how other people approach it. According to the FDIC’s latest 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, and the median, or middle, 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 keeps just over $5,000 in those kinds of accounts.

One thing to keep in mind is that these numbers don’t include people who are unbanked or underbanked. According to the Federal Reserve’s 2021 report on the Economic Well-Being of U.S. Households, roughly 18% of American households don’t use bank accounts or rely on alternative financial products and services.

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:

• Checking accounts
• Savings accounts
• Money market accounts
• Prepaid debit cards (when certain requirements are met)
• Certificate of deposit (CD) accounts

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 you share with a spouse or other person, then applying the “per ownership category” part of the FDIC coverage definition, a separate $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 run the risk of losing some of those funds if your bank fails. The good news is that bank failures are generally rare; there were only 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 insurance limits as a starting point. Remember that these limits are applied at the individual bank level. If you have more than $250,000 to deposit, you could open multiple accounts at different banks to spread out those funds. This could make it easier to stay under any bank-imposed account limits, as well as the FDIC coverage limits.

How Much Emergency Fund Should I Have?

Emergency funds are designed to hold money that can be used to cover unexpected or unplanned expenses. A long-standing rule of thumb for emergency funds is to set aside three to six months’ worth of expenses. So, if your monthly expenses are $3,000, you’d need an emergency fund of $9,000 to $18,000 following this rule.

But it’s important to keep in mind that everyone’s needs are different. So how much cash should you keep in a savings account or money market account for emergencies?

The amount of money you prefer to keep in emergency savings may be higher or lower, depending on your financial situation. For example, if you work in a highly competitive industry, maintaining a larger emergency fund could make sense. If you were to lose your job, you might face a monthslong job search. In that scenario, you might be glad to have nine or even 12 months’ worth of expenses saved.

On the other hand, you might be comfortable with a smaller emergency fund if you have minimal expenses and diversified streams of income. Losing your full-time job, for instance, might not be as financially damaging if you have several side hustles to fall back on.

What if your expenses or income fluctuates month to month because you’re self-employed or a gig worker? 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 $61,334 in 2020. That’s $5,111 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 $15,334 to $30,666 if you save three to six months’ worth of expenses.

How to Choose a Bank Account

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, money market and CD accounts. Checking the annual percentage yield, or APY, for deposit accounts is particularly important at times like this when the Federal Reserve adjusts interest rates.

After roughly two years of falling interest rates, APYs are finally on the rise. If you’ve been using the same bank since before the pandemic, your money might be better off elsewhere. To find out, carefully compare traditional and online banks to find the best interest rates for checking, savings, money market and CD accounts.

Keep in mind that online banks tend to offer higher rates than brick-and-mortar banks. You may also pay fewer fees at an online bank and face lower minimum deposit requirements. But you lose the convenience of branch banking access.

Bottom Line

Deciding how much cash to keep in the bank is a personal decision, so it’s important to consider banking fees, deposit interest rates and FDIC limits. Shopping around can help you to find the best banking option for your needs and goals.

Frequently Asked Questions (FAQs)