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?

Keep enough to cover monthly bills

If you don’t already have a budget, figure out how much you need to live on each month, from your mortgage or rent, to car payments, utilities, groceries and other miscellaneous expenses. Many financial experts recommend keeping enough money in your checking account to cover one to two months’ worth of expenses.

So, if your bills work out to $2,500 a month, you’d want to have about $5,000 in your checking account. If you’re a seasonal or gig worker, you may want a bit more, just in case you’re having a slow month (or you’re waiting to get paid).

It’s a good idea to have a bit of a buffer so your account doesn’t dip below $0 or the minimum balance and you end up paying fees. It’s easy enough to do, especially if you pay many of your bills via automatic withdrawal and if you use a debit card to make everyday purchases, like groceries.

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Make your extra cash work for you instead

While it’s important to have a buffer, you don’t want too much of a buffer. That’s because most checking accounts don’t offer high interest rates. The national average interest rate on a checking account in the U.S. is just 0.08%, according to the Federal Deposit Insurance Corp. (FDIC).

If you live on about $2,500 per month, but you have $12,000 sitting in your checking account, that money isn’t working for you. In fact, with inflation, your money might actually lose value over time. Ideally, you want to earn enough interest to at least keep up with inflation — and, better yet, make a profit. While the current rate of inflation has come down significantly over the past couple of years, sitting at 2.53% as of August 2024, it’s still higher than most checking accounts offer in terms of interest.

If you have $12,000 in your checking account, you could leave in about $5,000 to cover two months’ worth of living expenses. That leaves $7,000 for an emergency fund (almost an additional three months’ worth of living expenses). Most financial experts recommend having an emergency fund with enough money to cover three to six months’ worth of living expenses (say, you lose your job or your car needs a major repair).

The best place to keep an emergency fund is a high-yield savings account. They offer a higher annual percentage yield (APY) — the amount of interest that accrues over the course of a year — than a traditional savings account, but your cash is still easily accessible. The national average interest rate on a savings account is just 0.46%, according to the FDIC. And some are even lower. A high-yield savings account offers a much higher APY, often more than 5%, but may have minimum deposit and/or balance requirements. You should also check for any extra fees and hidden charges.

If you have already built an emergency fund and want other places to keep your cash safe and more liquid than in a retirement account, you can consider the following options:

Certificate of deposit (CD)

A certificate of deposit is a low-risk savings account that could earn as much interest as a high-yield savings account, possibly more. However, to earn that higher rate, you’ll have to agree to leave your money in the account for a certain period of time (ranging from a few months to a few years). Once the CD matures (the term expires), you get your money back, plus the accrued interest. But if you need to pull your money out sooner — say, for an emergency — you’ll have to pay an early withdrawal fee. There are no-penalty CDs, which could be an option if you think you might need early access to your cash, but you can expect to receive a lower rate.

Money market account (MMA)

Another option is a money market account, which combines features from both checking and savings accounts, with a rate comparable to a high-yield savings account. This is not the same thing as money market funds, offered by investment firms. You can treat an MMA like any other savings account, except most MMAs also come with a debit card and allow you to write checks. But banks typically restrict the number of transactions you can make, require a minimum deposit, and you may have to maintain a minimum balance to earn the higher rate, so be sure to read the fine print. However, it could be a good fit for someone who wants to save their money but have it accessible in case of emergency — say, to write a check for a car repair.