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How Much To Keep In That Joint Bank Account

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My fiance and I have a little dilemma: We have a joint checking and savings account that yields a paltry interest rate (it might as well be 0.00% but it’s some number slightly higher than that) and right now we’re having both of our paychecks deposited into that account. Our dilemma is that we don’t know how much money we should keep in that account because we’d like to keep that to a minimum and transfer the rest into her Emigrant Direct.

After a brief discussion in the car, we settled on $7,000. What we figured was that our monthly expenses is in the $3-$4,000 range combined at the maximum (a big chunk of that being the mortgage) so we figured twice that would be sufficient. Our monthly paychecks will still be deposited into the account but we figured we’d check the account and reduce the funds down to $7k whenever we saw that they were over. For major purchases, we’d then transfer funds into the account from her (or my) high yield savings account in order to pay for it.

Anyone have any thoughts on this? I’m starting to think $7,000 is a little high but the difference in interest earnings isn’t that much between $7k and, say, $5k.

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18 Responses to “How Much To Keep In That Joint Bank Account”

  1. CK says:

    I’d say the 7K is a bit high. I go with 5-6 but really whatever make you two the most comfortable is the right number.

  2. EasyChange says:

    We dont keep any more than 5k in our jt checking and savings accounts combined. Everything else goes into an interest bearing account as soon as possible. Just by doing this we’ve already earned close to 60 dollars in just three months, not including our ING bonus. So, I think that any more than 30 days expenses is a little much. You can always transfer the money and if a real emergency comes up, use the credit card and pay it off immediately and avoid the interest charges that way.

  3. ChrisCPA says:

    I think the balance you keep in your account depends only on you & your wife – just the minimum to meet your monthly needs.

    One thing my wife & I do is a cash account projection in Excel. This works very easily for us b/c we pay for virtually everything on our credit cards (of course we pay them off every month). Anyway, at the beginning of each month we update a cash projection showing our current balances and anticipated activity. Any excess, except for a minimum amount (usually around $500), is transferred to a money market account currently yielding about 4.5% – with free check-writing priviledges. Any emergency needs come from this account. The projection extends out about 6 months & has been very helpful in determining our cash needs so as much money as possible is earning interest.

  4. Golbguru says:

    $7000 is really too high ( well unless you are paying bills etc to the tune of $6000 each month).

    We keep bare minimum in our brick-and-mortar checking account..just enough for rent and bills and some for emergency withdrawal. Everything else goes to high interest accounts.
    Btw, may be I am curious, you say “joint checking and savings account that pays paltry interest” and “her (or my) Emigrant account”.
    Why wouldn’t you have joint high-interest accounts together; any specific reason or it simply turned out like that.

  5. David says:

    Definitely have been wondering about this myself. I figured 150-200% of monthly expenses is a good amt.

    ChrisCPA – the money market account with check-writing is a good idea, and something I should look into. I’m all about less wasteful surplus in the checking account.

  6. Dus10 says:

    Maybe you should checkout eBank.com.

    I was looking at their site over the weekend for a coming refinance I will be doing in February. They have a ePremium checking that offers 3% if you have an average daily balance of $5K or a minimum balance of $2500 throughout the month. They also offer a Money Market Savings Account at 5.15%. You could just have the interest from the checking transfered to savings and be a happy camper.

    I am considering this, as I am using HSBC for checking and savings, and I have no local HSBC branches, so it would not be much different for me. I also keep a checking account at a local bank, just in case I have some checks I need to cash quickly.

  7. jim says:

    Dus10 – For the joint checking account I’m only considering banks with branches in my local area because it’s acting as my liquid account, where I’ll need the funds ASAP. For a higher yield savings account, I’m going to stick with Emigrant Direct for that.

  8. samerwriter says:

    I think you’re going about it backwards.

    1. Make your budget.
    2. Figure out how much you need per month. (add up the entries in your budget)
    3. Direct deposit your paychecks to Emigrant Direct
    4. Set up a monthly automatic transfer from Emigrant Direct to your checking account for the amount you calculated in #2.

    If you really want, put a $1000 or so cushion in your checking account. This technique has several advantages:

    1. Your paychecks start earning interest immediately
    2. Any “extra money” in your paychecks (raises, bonuses, etc..) is hidden from you (since it goes straight into your savings, it never touches your checking).
    3. You can set up your transfers however you want. Prefer to get “paid” weekly? Transfer 1/4 of the monthly budget amount every week.
    4. You can give yourself a “pay raise” or “pay cut” whenever needed. Just change the amount you’re transferring.

  9. I also used to keep a small amount in a local bank with a crappy interest rate. But, luckily, they (WaMu) suddenly upped their rate for new accounts to 5.00%. I immediately closed my old account and opened a new one. Now, I still keep only a small amount in there (I only need about $300 or so for cash), but I’m getting a great rate. I still use other accounts for most of money cuz I can get 5.5% (eLoan) and 6% (Dime for 3 months) and two 6% CDs.

    Look around your local market some more. Unless you live in the middle of nowhere, I bet you can find something better . . .

  10. samerwriter says:

    Somebody else mentioned a money-market account so you can write checks. If you can’t write checks on your Emigrant account, I’d dump it for an account that you can write checks on.

    For example Vanguard always offers high rates on it’s prime money market account, and you have check-writing ability. Better yet, when your “emergency savings” gets too high it’s easy to transfer money into some of the best index funds around (Vanguard’s). I imagine most other firms (Fidelity, ML, etc..) offer similar services.

    When we have to make large purchases that aren’t covered by our checking account, we just write a check from our Vanguard account.

  11. jeffro says:

    I bank with Citibank. I keep a very small amount in my Interest Checking (~1% apr). Typically between $1000-$2000. I also have an e-Savings (~5% apr) account. I simply move money back and forth as needed. Takes only a couple minutes using the free on-line banking.

  12. James says:

    I can’t know what your exact motivations are, but when my wife and I approached this problem, we looked at it differently. Instead of targeting a maximum balance, we target a minimum balance. This is in keeping with the goal of minimizing the amount of money that resides in a low-interest account.

    We chose the minimum-balance target as the cushion we would like to have to cover fluctuations and minor unexpected expenses. Our paycheck direct-deposits allow multiple destinations, so we direct-deposit enough of our paychecks to cover our normal expenses. The rest of the money goes to investments or a higher-interest cash account.

    The minimum balance occurs on about the same day every month, so we can look at the account balance at about that time every month and know how we’re doing in terms of expenses. If it’s low, we can plan to cut back a bit the next month or transfer some money in to make up the difference. If it’s high, we can transfer the excess out.

    If your expense estimate of $3000-$4000 is accurate and you’re depositing roughly enough to cover those expenses, then every month you’ll see a minimum balance of at least $3000 (probably higher depending on when you get paid and when your bills go out). Is that the size of cushion that you want or would you be comfortable with less?

    Assuming the difference in rates between your low-interest and high-interest accounts is 4%, then every $1000 in cushion has an opportunity cost of $40/year. Not exactly a boondoggle, but it’s something.

    The mechanics of this approach are essentially identical to what samerwriter described in his post above. I just wanted to point out that with this approach it’s easy to set and track a meaningful target and it’s easy to quantify the trade-off you’re making, all while maximizing your return on your cash.

  13. Steve says:

    $5000 is ok. I am a fan of having a cushion in all my accounts. The real issue is trust into what each of us perceive to be the purpose of the account

  14. Josh says:

    My advice is find a better checking account. Bank of Internet (www.bofi.com) has free interest checking between 3.4 and 3.65% if you keep $1000 in your account. That extra 3% or so on $7000 comes out to $210/yr. Definately worth the 30 mins of time that goes into opening the account.

  15. Randy says:

    I don’t think I’m saying anything that hasn’t been said, but here is how my wife and I deal with it (has been effective for the last 6 years).

    BTW, I’m not advocating E*trade, I’m advocating using a single vendor, regardless of the company.

    We use E*trade for everything. Joint checking, saving, brokerage, and money market accounts. There are no other his or her accounts. A single log-in shows everything under a single pane of glass and having totally combined assets allows us to take advantage of great savings rates (not quite as good as Emigrant, but close).

    We have allocated a specific amount to be direct deposited into our checking account every pay period that exactly matches our fixed spending (e.g. mortgage, electric, gas) and projected variable spending (e.g. groceries). We also target a minimum balance of $2,000 in case a payment “accident” happens where we forget to transfer money from our savings for a large purchase, like the new washing machine we just bought (we travel a lot for work, sometimes weeks at a time, so this tends to happen more often than I would like).

    Similar to ChrisCPA, we also track our projected spending in Excel for 12 months in advance. Essentially it is a cash flow statement. Pick up a basic accounting book to learn how to build one. The equation is simple. For a monthly cash flow statement it looks like this:

    Beginning balance
    + All income
    - All expenses
    = Ending balance
    - Desired minimum balance
    = Free cash
    - Projected expenses next month before receiving a paycheck
    = Available cash

    Essentially, the target is to have “Available cash” always equal zero. If it is negative, we are either spending too much, need to transfer money from savings, or pay ourselves some more every month. If it is positive, we need to be directing more of our paychecks into savings and investment.

    Sorry for the wordy response. I used to take a more “gut-feel” approach to these things, but with my wife’s prodding we now take a much more exact approach that eliminates guesswork. I thought the approach would save us a few pennies, but in fact it has saved us hundreds if not thousands every year. I could go into more detail, but I’ll save everyone the pain and agony of my already pedantic monologue ;)

  16. prlinkbiz says:

    I keep only what I need in my accounts and tie up the rest. For a couple of reasons- no access to it, can’t fritter it away; I do not want any money sitting around- I want mine all working for me to increase. Do you know what kind of returns you can get if you put that extra $1-2 K a month into higher ROI investments? Start with one. Take the money you make and roll that back into other investments and keep your “cushion” if you need one. But learn to make your money grow, don’t just let it sit.

  17. Sun says:

    $7K is definitely high.

    We have a Bank of America checking account and the balance is usually around $3K to $4K, all others go to EmigrantDirect or HSBC. Our paychecks are directly deposited twice a month into the BoA account. As of bills we need to pay, I arranged the payment due dates of credit cards we used most and mortgage be within the first 10 days of the month, after the first deposit is made at the beginning of the month. Since we charge almost everything on credit cards, I know when the bills come and the approxmiate amount. After the second deposit, usually at the middle of the month, I check the balance of the BoA account and transfer whatever amount above $4K to savings accounts. In addition, several hundred dollars are transferred automatically from BoA to EmigrantDirect on the pay day.

    It’s good and necessary to have some money in the checking account that you can withdraw immediately in case of any emergency. But I think it is very unlikely that I will need several thousands of cash right away. Therefore, leaving too much in a checking account that earns almost nothing is not a very good choice, in my opinion.

  18. Joe says:

    This is some great advice. I’m going to have to look into it when I do my own finances.


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