I have $12K in my checking account and the bank teller just told me that’s too much — so how much should I really keep in there?

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You've been setting aside extra cash in your checking account, but you now have approximately $12,000 saved up. You'd like that money to be readily available for everyday expenses, such as groceries, bills, and unexpected costs. However, your bank representative informs you that it's excessive to have that much money in a checking account.

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Is the bank teller's advice correct, and if so, how much should you keep in there? While the average household checking account balance in the US was around $8,000 in 2022, according to the Federal Reserve's 2022 Survey of Consumer Finances, there's no one-size-fits-all rule for how much you should keep in your account. However, there are ways to make your money work more efficiently for you.

To maintain sufficient funds for monthly expenses.

If you don't already have a budget, determine how much you need to cover each month, including your mortgage or rent, car payments, utilities, groceries, and other miscellaneous expenses. Many financial advisors suggest keeping enough money in your checking account to cover one to two months' worth of expenses.

If your monthly bills come out to around $2,500, you should aim to have about $5,000 in your checking account. As a seasonal or freelance worker, you might want to save a little more, just in case you have a slow month or are waiting to get paid.

It's a good idea to have a little extra money in your account to avoid overdrafts and fees. This is relatively simple to do, especially if you set up automatic payments for your bills and use your debit card for everyday expenses, such as grocery shopping.

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Make your extra money work for you instead.

It's essential to have some buffer, but not too much, because most checking accounts don't provide high interest rates. The average interest rate for checking accounts in the U.S. is just 0.08%, according to the Federal Deposit Insurance Corp. (FDIC).

If you live on $2,500 a month and have $12,000 in your checking account, that money isn't being used to its full potential. In fact, due to inflation, its value might actually decrease over time. Ideally, you want to earn enough interest to at least keep pace with inflation - and, even better, make a profit. Although the current inflation rate has decreased to 2.44% as of September 2024, after dropping significantly over the past couple of years, it's still higher than what most checking accounts offer in terms of interest.

If you have $12,000 in your checking account, you could keep around $5,000 to cover two months' worth of living expenses. That would leave you with $7,000 for an emergency fund, which is nearly enough to cover three months' worth of living expenses. Most financial advisors typically suggest having an emergency fund that can cover three to six months' worth of living expenses, in case you lose your job or your car needs a costly repair.

They offer a higher annual percentage yield (APY) - the amount of interest that builds up over a year - than a traditional savings account, but your money remains easily accessible. The national average interest rate on a savings account is just 0.46%, as reported by the FDIC. And some are even lower. A high-yield savings account provides a significantly higher APY, often more than 5%, but may come with minimum deposit and/or balance requirements. You should also check for any additional fees and hidden charges.

If you've already set up an emergency fund and are looking for other safe and easily accessible places to store your cash that are more liquid than a retirement account, consider the following options:

Certificate of deposit (CD)

A certificate of deposit is a type of savings account that is relatively low-risk and can potentially earn as much interest as a high-yield savings account, or even more. To earn the higher interest rate, you'll need to agree to keep your money locked in the account for a specific period of time, which can range from a few months to a few years. When the term expires, you'll receive your original deposit back, plus the interest that's accumulated. If, however, you need to access your money before the term is up - for instance, in an emergency - you'll have to pay a fee for early withdrawal. There are also "no-penalty" CDs, which can be a good option if you think you might need to access your money quickly, but you should expect a lower interest rate.

Money market account (MMA)

Another option is a money market account, which combines features from checking and savings accounts, with interest rates similar to a high-yield savings account. This is not the same as a money market fund offered by investment companies. You can treat an MMA like any other savings account, but it usually comes with a debit card and allows you to write checks. However, banks typically limit the number of transactions you can make, require a minimum deposit, and may require you to keep a minimum balance to earn the higher rate, so be sure to read the fine print. Nonetheless, it could be a good fit for someone who wants to save their money but have it available in case of an emergency, such as writing a check for a car repair.

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This article is for informational purposes only and should not be considered as professional advice. It is provided without any guarantee of its accuracy or reliability.