Most consumers treat their checking accounts as a sort of way station for money, depositing funds with a set expense in mind to be used a short time later, according to one recent survey.
As a result, consumers rarely have larger balances in their checking accounts for any length of time. Of the 95% of U.S. consumers with checking accounts, the survey showed that 34% maintain a balance of less than $100.
Some consumers maintain a larger cushion to protect against potential overdrafts, and 29% of consumers in the survey reported keeping a running balance of greater than $1,000. Even the 13% of consumers who said they keep balances of more than $2,000 that isn’t set aside for a specific expense may fall well below the threshold some experts recommend.
The industry recommendation is for consumers to keep their checking accounts padded with about 25% to 30% of their monthly expenses, while also maintaining enough cover for one to two months of living expenses. Other experts recommend that consumers keep any extra money in savings accounts to earn interest, noting that moving funds into less-accessible accounts reduces the risk of losing that money to fraud.
Meanwhile, digital banks are becoming a more common primary checking account provider for consumers, especially young consumers.
More than a quarter of consumers between the ages of 21 and 26 and almost a third of those between the ages of 27 and 41 said their primary checking account provider is digital.
But this trend doesn’t stop with young consumers. The portion of banking customers who said they have their main checking account with a digital bank grew from 8% in October 2020 to 22% in January of this year.
These consumers must come from somewhere, and there’s evidence that bigger banks — firms like Bank of America and J.P. Morgan Chase — are losing out the most to digital providers. There has been a significant drop in the number of consumers reporting that they have a primary checking account with one of the big national banks since the pandemic began, with declines ranging from 10 percentage points to 18 percentage points.