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Should you be a checking-account hoarder?

should_you_be_a_checking-account_hoarderHoarding is a bad thing, right?

Well, it might sound funny, but consumers are keeping fairly large balances in their checking accounts -- contrary to the advice of many personal finance experts who advocate keeping the bare minimum to cover expenses.

Interestingly, consumers who buck conventional wisdom might be a step ahead of the experts in this case. A combination of banking conditions in recent years might make it wise to keep an unusually large amount in your checking account instead.

At least it's a good time to reassess how much to keep in checking versus savings or any other bank account, given that these conditions may be turning conventional wisdom upside down.

How much to keep in checking?

To understand whether your checking account balance would be considered unusually large, small or just about right, it helps to know what the norm is. What is the average balance in a checking account?

According to analysis of Federal Reserve data by Moebs Services, average checking account balances have been rising steadily in recent years and now top $3,700. This pattern of accumulating more money in checking has been described as hoarding -- but is it unwise?

Traditionally, experts have argued that, yes, it may not be the best practice. Compared to savings or money market accounts, checking accounts generally offer negligible interest rates, if any. That's why experts advocate keeping just enough money in your checking account to cover your regular transactions (say, expenses you are likely to incur from one paycheck to the next) while allocating the rest of your deposit balance to savings or money market accounts where it can earn a higher return.

However, rising checking account fees and low interest rates may have reset the break-even point for many consumers. Depending on your banking habits, you might be better off as a checking-account hoarder.

Fees vs. interest

These days, free checking accounts -- those that don't charge a monthly fee -- have become relatively scarce. The latest MoneyRates.com semi-annual fee survey found that less than one-third of checking accounts are free of monthly fees.

With some effort, those fees can be avoided. But it's worth noting that they are larger than ever.

The average checking account maintenance fee now costs $162.12 a year. However, in many cases you can qualify for a fee waiver by keeping a specified minimum balance in your account -- which may explain why checking account balances have been rising. Keeping a larger balance could also help you avoid overdraft charges, which average $32.75 per occurrence.

While fees on checking accounts have been rising, interest rates on savings accounts have languished near zero in recent years. The latest MoneyRates.com America's Best Rates survey found the average savings account rate to be just 0.345 percent -- and as low as that is, it is actually an improvement over where rates have been in recent years.

To put this all in perspective, consider that $3,700 average checking account balance. Placed in a savings account at today's average interest rate, that balance would earn about $12.77 a year. If on, the other hand, keeping it in a checking account helped you qualify for a fee waiver that would save you $162.12 a year -- and give you a cushion to help avoid overdraft fees at $32.75 a pop -- it's easy to see why you might opt for a larger checking account balance.

Qualifying for free checking

So, if you are trying to figure out how much money to keep in a checking account, the answer may be to keep a large enough balance to qualify for a fee waiver. Chances are, the money you save by doing so may exceed the interest you could earn by putting that money in a saving account instead.

Of course, finding a free checking account -- one that won't charge you a fee regardless of your balance -- can help simplify things. This would negate the trend of rising checking account fees and allow you to return to the conventional wisdom of keeping just enough in checking to cover regular expenses so that the remainder of your money can be earning the highest return possible.

More resources on checking accounts:

Compare checking account offers

Better ways to find the best checking account

How bad can fees get? These fairly common, sloppy banking habits could cost you $655.12 a year.

Want to avoid monthly maintenance fees, overdraft charges and ATM fees? Read our latest update on bank fees

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