Is $10,000 Too Much to Keep in a Checking Account?

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Adulthood comes with lots of questions -- and many of them involve personal finance. Having multiple financial accounts is always a solid idea, and it's important to consider how much money you should be keeping in each of them.

Let's say you have $10,000 in your checking account right now. Is that too much money, not enough money, or just right? Here's how to decide.

It's smart to leave yourself a buffer

Not having extra cash in your checking account is a short trip to an overdraft in the event of a surprise bill -- no one's idea of a good time. Overdrafting your checking account is an embarrassing and potentially expensive hassle, as you could find yourself paying an average fee of $26 for the privilege.

Leaving extra money in your checking account is a good idea (as are opting in for overdraft protection and setting up low balance alerts with your bank, to let you know of impending doom).

Consider your monthly expenses…

Do your monthly expenses amount to $10,000 (or more)? That's the first point to consider if you're wondering whether $10,000 is too much to keep in your checking account. If you spend more than $10,000 a month and only get paid monthly (or even biweekly), $10,000 might not be enough to have in checking. But if you spend just $5,000 a month, $10,000 could be too much.

…and your comfort level

Personally, I've eased down on how much extra money I keep in my checking account. It was $1,000 extra until fairly recently, but these days, it's just $500. And even this amount is amazing to me, because in all my years of living paycheck to paycheck, having $500 extra in checking would have meant I accidentally forgot to pay a bill (and for the record, I haven't missed a bill in years).

But if you're less confident in your ability to manage bills and access money from another account when you need to, you might want to keep more in your checking account. Consider that monthly expense figure we talked about above -- or pick a nice round number, like an extra $1,000 or $2,000.

Where should the extra cash go?

As you already know, I leave a pretty small buffer in my checking account. It's because I can't stand the thought of more money collecting dust in there, instead of earning interest. This is especially true right now, as rates on savings accounts, money market accounts, and CDs are in the 4.00%-5.00% range thanks to the actions of the Federal Reserve.

The easiest option: A high-yield savings account

While we await rate cuts from the Fed (according to Reuters, we can expect one in September), it's a great idea to take advantage of higher rates while we can. I keep my excess cash in a high-yield savings account .

This is perhaps the easiest option for most people looking to earn interest. HYSAs offered by online banks pay higher rates (since those banks have fewer overhead costs), are easy to open, and they often come without fees of any kind.

Let's say you've got $10,000 in your checking, but between your bills and your comfort zone, that is $5,000 too much. Stick that extra $5,000 in a savings account paying an APY of 4.00%, and you could earn almost $17 in the first month -- or $204.04 over a year. (Keep in mind: Savings account rates aren't fixed and are subject to change any time.)

This isn't a ton of money, but it's more than you had before -- and this number also assumes you never add any more to the account.

More advanced options: CDs, MMAs, and investing

You can also consider certificates of deposit if you've got a set timeline for the money (and with CDs, your rate is fixed for the term you lock in). A money market account is a good pick if you want to earn interest and preserve the easy access to the cash you had when it was in your checking account.

And if you have a long timeline (five or more years), consider investing that money to take advantage of the long-term growth potential of the stock market -- an average return of 10% annually (based on historical figures) could be yours with a long enough timeline to wait out dips.

Ready to find a new home for some of that excess money hanging out in your checking account? A high-yield savings account might be just the ticket. You may as well earn a generous interest rate on your cash while you can.

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