I have a long history of living paycheck to paycheck — I spent over a decade in a lower-paying career field and never had much left over after paying the bills. I managed to turn my finances around when I changed careers a few years ago, though, and I’m happy that I have money left over to save just about every week now.

Despite this happy turn of events, I still run a tight ship with my checking account. Once all the bills are covered, I leave only $500 in that account as a buffer. But I have several good reasons for it.

I want to earn interest on my cash

It’s a great time to have money in the bank, thanks to higher interest rates on savings accounts, CDs, and money market accounts. This is due to the Federal Reserve’s fight against inflation and the resulting higher federal funds rate. The Federal Reserve is expected to start cutting rates this fall, however — so we can expect those 4.00%, 5.00%, and higher APYs on bank accounts to decline.

Until they do, I’m keen to earn as much interest on my money as possible. That means taking it out of my checking account, where it won’t earn anything.

It simplifies spending and bill paying

While I don’t love the fact that I have to pay so much money just to exist in America in 2024, I actually sort of enjoy the act of paying bills itself. I sit down every week with a spiral notebook (that I use as a “checkbook”) and my wall calendar, and pay everything that’s due that week. It’s easy to remember that I just need to leave $500 in the checking account, and do the bill-paying math accordingly.

I have overdraft protection

I have a savings account linked to this checking account, and while it’s got a pathetically low 0.01% APY, it’s good for one purpose in particular: overdraft protection. If I somehow misfigured my math and accidentally overspent my checking account, money is transferred automatically from the savings account, saving me the hassle of a returned payment.

I think everyone should have overdraft protection. Overdraft fees can add up quickly, and if you overdraft your account often, it will be reflected on your ChexSystems report, hurting your banking reputation.

I have an emergency fund — and another checking account

Finally, I’m OK with keeping just $500 extra in my main checking account because I have another set of accounts at a different bank. I opened a high-yield savings account with an online-only bank a little over two years ago, and I linked a checking account to it so I would have easier access to that cash. In a pinch, I can transfer money from that savings to its checking partner and then write a paper check, use my debit card, or take cash out of an ATM.

My emergency fund is in this savings account, and I contribute to it every week, so I’m confident of having the cash to address an unplanned bill, even if the money isn’t coming out of my main checking account.

How much should you keep in your checking?

Personal finance is personal, so I can’t answer this question for you. Different people have different approaches — I’ve heard of some keeping a full month’s worth of expenses in their account, while others do what I do and pick a target figure, like $500, $1,000 or $2,000.

I certainly don’t recommend keeping less than $500 extra — life is unpredictable and if you don’t have another set of bank accounts you can draw on in a pinch, having a smaller cushion could be a problem for you.

It’s worth considering how much you typically spend on bills in a given month, and also setting up overdraft protection with a linked savings account, if you haven’t already. From there, think about your comfort levels around money to land on the right choice for you.

My $500 cushion is a fairly recent development — until just about a year ago, I was leaving $1,000 extra in my checking. It’s not all that surprising that it would take time for me to get more comfortable funneling more money out of checking, given my history with living paycheck to paycheck. In the end, we all have to do what works best for our money and our peace of mind.

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