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Checking vs Savings account: How much cash should you keep? 14.12.2020

Your Checking and Savings accounts both serve your financial needs. But should you fatten each account equally? CompareLoans takes a look at the perfect ratio to maintain when it comes to your Checking and Savings balances.

What’s the difference between Checking and Savings accounts?

A checking account is where you keep cash to cover everyday expenses like groceries, airtime, fuel, or taxi fare.

Your savings account is where you keep your savings money or “nest egg” so it doesn’t get mixed up with your “regular money.” Typically, the cash doesn’t just sit there – it also earns interest for you!

What you need to know about keeping cash in a Checking Account

At the very least, you should have enough cash to meet your bank’s minimum balance requirements. Otherwise, you’ll get slapped with penalty fees.

Beyond this baseline, the best practice is keeping enough cash to last you 1 or 2 months plus 30% extra. For instance, say you have calculated your monthly living expenses, and your total is R10 000. That means, in a best-case scenario, you should have at least R20 000 + 30% of that, which adds up to R26 000. 

This should offer just enough financial padding for you to avoid overdrawing your account or bouncing a debit order. These “oops” moments can be costly because most South African banks won’t hesitate to add expensive charges to your bill.

What you need to know about keeping cash in a Savings Account

Once your checking account is all sorted, you can now funnel any surplus cash into your savings account. In addition to earning interest, money in your savings account is also more secure. However, make sure you’re not putting your cash in a low interest-bearing savings account where inflation will reduce its buying power.

Personal finance 101 says an emergency fund is a must-have. Generally, the suggestion is a minimum cash amount you can solely survive on for between 3 and 6 months. This emergency fund is usually for dire situations like losing your job or an unplanned stay in the hospital. 

If you need extra funds for a home renovation, a holiday, or some other big purchase, you’ll have to save separately for that, or take out a personal loan.

The bottom line

So how much should you pour into your checking account, and how much to sink into savings? The rule of thumb is enough to last 2 months plus a little extra for your “daily needs account.” This should ensure you have enough cash flow at your fingertips to avoid racking up unwanted bank fees.

For your savings account, having 3 to 6 months’ worth of expenses tucked away should keep you in the green zone. But that’s for emergencies and unexpected expenses. You’ll need to save more for future big-ticket expenditures. 

Remember, it’s not about what the average South African keeps in their accounts. Your lifestyle and financial goals are unique, and what’s in your checking or savings account should be tailored to these factors. As long as you’ve covered the bases mentioned here, you’re all set in the right direction.

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