A 2023 survey by fintech company SecureSave found that 63% of Americans didn’t have enough savings to cover an unplanned $500 expense. So if you’re someone with more than $50,000 in your savings account, you’re clearly in a much better financial place.
But that doesn’t mean you should maintain a savings account balance above $50,000. Doing so could actually hurt your finances in the long run.
The problem with keeping too much money in savings
A savings account is an important thing to have. You need a safe place to keep the money you have set aside for emergencies and short-term goals.
The problem with savings accounts is that while they’re paying generously today, even current interest rates pale in comparison to the S&P 500’s average return over the past 50 years, which is 10%.
Now it may be that you need more than $50,000 in your savings to cover yourself for emergencies and address a short-term goal. For example, if you’re planning to buy a house in 2025, it’s more than conceivable that you might need upward of $50,000 as a down payment.
But as a general rule, your emergency fund should be set to cover three to six months of essential bills. If you’re well beyond that point and you don’t have any big financial goals on your short-term horizon, then you may want to move some money out of savings and invest it instead.
The numbers don’t lie
Let’s say you don’t have any large purchases coming up and your essential monthly bills amount to $5,000. Even if you want a six-month emergency fund, that’s only $30,000.
If you have more than $50,000 in your savings account, it’s a good idea to open a brokerage account and start investing the rest. Check out this list of the best brokerage accounts to get started.
Imagine you have $52,000 in savings but can afford to pull $22,000 out and invest it. If you get a 10% annual return over the next 20 years, you’ll end up with about $148,000.
But watch what happens if you keep an extra $22,000 in a savings account. Even if you continue to earn 4% a year — which is unlikely since rates are expected to fall and 4% saving account rates aren’t the norm — that only grows your balance to $48,000. If you don’t love the idea of giving up $100,000, then it’s best to start investing rather than limit yourself to a savings account.
And if you’re worried about taking on risk, consider this. The stock market’s average 10% return also accounts for years when the market did horribly. But if you invest over a long period of time, that alone minimizes your risk.
Also, if you don’t invest in stocks, you run another risk — losing out on money that could be yours. So if you’re sitting on more than $50,000 in your savings account, ask yourself whether you actually need that high of a balance. And if you don’t, consider investing the rest so it’s able to do a lot more for you.
