How much money should you keep in your checking account?

The Federal Reserve Board reports that the median checking account balance for American households stands at $2,800. However, this figure raises an important question: What is the optimal amount an individual should maintain in their checking account?

Yahoo Finance's Molly Moorhead breaks down the details, providing tips to help individuals determine the ideal checking account balance for their unique circumstances.

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This post was written by Angel Smith

Video Transcript

Well, the median households checking account balance is $2800.

That's according to the Federal Reserve Board.

But how much money should you keep in your checking account?

There's no hard and fast rule, but stowing away enough cash is crucial to be able to handle any prize bills that life throws at you to discuss this further, we've got our very own Molly Morehead here in studio with us.

So Molly, $2800 is what the Federal Reserve is seeing.

What should the real number be that most people can set, at least as an ideal target?

Well, as you can imagine, there's not really a number that applies to everyone.

It's all in.

Uh, what?

How much are your bills, your income, your spending habits?

And so the good, uh, couple of rules to follow are you Want enough that you'll never be overdrawn and enough that you have a cushion and the cushion, if you can do it, is two months worth of, um, your expenses.

So if you have $4000 in bills every month, if you can keep eight, that's good.

If you can keep six, that's good.

Um But you just wanna know that you're never getting too close to zero.

Absolutely.

So once you have the right amount for you in that account, that two months of all in expenses, what do you do with the extra?

Yeah, the So the the reason you don't want to keep it all in checking is that it's not making any money for you.

So you wanna put it in something that's gonna be interest bearing, um, of high yield savings account?

Those are paying, like, 5% right now.

A CD.

A money market account.

Um, those are all good options that are liquid.

And then, um, you always wanna be socking money away for retirement.

So if you have, um, a regular income every month, a salary and you get that healthy amount in your checking account, then put it away for retirement.

That's always a good play.

Molly Morehead.

Thanks so much for breaking this down for us joining us here in studio Yahoo Finance's Zone.