Why Having a “Fat” Checking Account Can Be a Bad Thing

There are several reasons that many Americans prefer to run the majority of their finances through their checking account first. For one it provides them with easy access to cash when they need it. Additionally several banks have begun charging fees should your account dip below a certain balance, leading many to cautiously avoid that threshold. But is it possible to have too much money in your checking account?

According to Tony Amstrong’s recent article in USA Today the average checking account balance for the first quarter of last year was $5,459. That’s more than double what the average was back in 2008. While that might seem like a positive thing (who doesn’t like having more money?) the truth is that maintaining a “fatter” checking account often means that consumers are missing opportunities for better returns on their money.

In order to determine how much cash you should keep in your checking account, Armstrong first recommends keeping a log of all your spending for three months to determine your monthly average. Experts recommend having enough money to cover two months worth of expenses but then also keeping an extra 30% as a cushion. This will help you avoid any overdraft or “maintenance fees” incurred from low balances.

As convenient as checking accounts are the biggest drawback to using them to hold extra cash is that most don’t accrue any interest. Because of this it’s important to be diligent about moving your surplus funds to a savings or growth retirement account. It’s also true that some banks do offer interest checking but rates are typically extremely low (.01% APY). However some online-only banks such as MyCBB and Ally offer interest checking accounts that might be better options for you.

[graphiq id=”2R2OT6bQTKl” title=”Weekly Average Interest Rates from Different Banks” width=”600″ height=”388″ url=”https://w.graphiq.com/w/2R2OT6bQTKl” link=”http://banks.credio.com” link_text=”Weekly Average Interest Rates from Different Banks | Credio”]

While having a lot of money in your checking account might not sound like a problem, it usually indicates that your money would be better off elsewhere. Although it’s important to have enough in your checking to cover your expenses while still avoiding overdrafts and minimum balance fees, the cushion you need may not be as big as the one you’re currently maintaining for yourself. By calculating your average monthly spending, monitoring your surpluses, and researching alternatives options for your extra cash you can help ensure that your money is being put to work properly.


Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

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