How Much Cash Should You Keep In The Bank?

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

How Much Cash Does the Average Bank Account Have?
When figuring out how much cash to keep in the bank, it helps to have some perspective on how other people approach it. According to Federal Reserve 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 in 2019. The median 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 landing in the middle keeps just over $5,000 in cash in those kinds of accounts.

One thing to keep in mind is that these numbers don’t include people who are unbanked or underbanked, which includes 22% of American households. The unbanked and underbanked either don’t have bank accounts at all, or they rely on alternative financial products and services.

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 a $1 million limit for a single deposit account and a total maximum of $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 in your account or customer agreement.

Aside from the bank’s limits, however, there are other limits to keep in mind. Specifically, this means the limits imposed by the Federal Deposit Insurance Corporation (FDIC). These guidelines can influence how much cash you decide to keep in the bank at any given time.

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 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 that you share with a spouse or other person, then applying the “per ownership category” part of the FDIC coverage definition, another $250,000 coverage limit applies to your half of the funds in that joint account.

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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 potentially run the risk of having some of those funds be unprotected if your bank fails. The good news is that bank failures are generally rare; there were just 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 limits as a starting point. Remember that these limits are applied at the individual bank level. If you have more than $250,000 to keep in cash at the bank, you could open multiple accounts at different banks to spread those funds out. This could make it easier to stay under any bank-imposed account limits, as well as the FDIC coverage limits.

What’s a Good Amount to Keep in a Checking Account?
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 make transferring funds between the two quick and easy.

But what is a good 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 ne