Why a Fully Funded Checking Account is Smart (Even with an Emergency Fund)

It never hurts to have a little cushion.

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Key points

• My checking account pays minimal interest.
• In spite of that, I like to keep it funded beyond what I need for near-term bills.

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As a self-employed worker with young kids, a dog, and a house I'm responsible for, I'm what you might consider a little financially paranoid. What that means is that I often worry about money -- particularly unplanned bills -- even though I do a fairly good job of saving and not spending my entire paycheck.

In fact, most people are advised to put together an emergency fund with enough money to pay for three to six months of essential bills. The logic is that a sum like that could get someone through an extended period of unemployment, or it could cover a large expense, like a surprise home repair.

However, I'm able to and I like to keep more like a year's worth of expenses in my savings account. While I don't earn a lot of interest on that cash, having it in savings gives me peace of mind.

But it's not just my savings account that's a bit overfunded. I also like to keep a few extra thousand dollars in my checking account. Here's why.

A small cushion could go a long way

I don't pay bills from my savings account. Rather, my various expenses, from my mortgage to my auto insurance premiums to my credit card bills, get paid out of my checking account. My checking account is also the account I tap when I need to take cash out at an ATM.

Normally, I'm pretty aware of what my monthly expenses look like. But sometimes, I can run into a situation where I have a lot of bills due in a short period of time, or I forget about a one-off expense that's coming due. And for that reason, I like having extra money sitting in my checking account -- in case I need to access a lot of cash in short order.

As an example, last month, I had to pay for my son's summer camp in full. It was many thousands of dollars. My daughters' camp, by contrast, has me paying my tuition balance over six months, which is easier to manage from a cash flow perspective. If I didn’t have a few extra thousand dollars sitting in my checking account, I might've encountered a stressful situation when my son's tuition was debited. While I should've remembered that the balance was due in February, naturally, I didn't.

I also make a point to pad my checking account because if there's one thing I hate doing, it's losing money to fees. Many banks will let you overdraw your checking account, but they'll charge you for it in the form of overdraft fees. Having extra money in my checking account helps me avoid those.

The peace of mind is worth it

I happen to have a checking account that pays a small amount of interest, but it's less interest than what I get in my savings account. In spite of that, I still like to uphold the practice of keeping a few extra thousand dollars in my checking account so it's available to me when I need it. Doing so gives me extra peace of mind, the same way I take comfort in knowing I have a decent pile of cash sitting in my emergency savings if I need it.