Is $50,000 too much money to keep in a savings account?
When it comes to saving money in a savings account, you probably think “more” means “better.” Yes? In other words, it is better to save $20,000 than $10,000, and it is better to save $10,000 than $1,000.
That logic is true to a certain extent. Depending on your situation, you could save $50,000 or more.
Should you keep $50,000 in cash?
Savings accounts are great because they pay you interest without taking on the risk of investing your money in stocks or other assets that could fall in value. And sometimes the interest they pay can be generous. That’s the case now, with many high-yield savings accounts paying 4% or more.
But there ~can do There comes a point when the cash you have saved becomes too much. Depending on your circumstances, $50,000 may be excessive.
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Earn maximum APY by using direct deposit (no minimum required) or making $5,000 or more in qualified deposits every 30 days. See the SoFi Checking and Savings Rate Sheet at https://www.sofi.com/legal/banking-rate-sheet. | earn the least $0 |
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Or maybe not.
Look, it’s important to have enough emergency funds to cover three to six months of essential bills. And a savings account is the best place to build an emergency fund. But if you’re aiming for a five-month emergency fund and your essential bills amount to $10,000 per month, you’ll be on track with a balance of $50,000.
Likewise, a savings account is a great place to save your stash for short-term goals. Let’s say you’re looking to install a swimming pool this year and the price has been quoted at $60,000. You now have $50,000, so you need to save $10,000 more. In this scenario, you’re doing the right thing by keeping $50,000 in savings while you work to come up with the rest.
But if you don’t need $50,000 in emergency savings and aren’t saving for short-term goals, that amount may be too big to keep in the bank. In fact, if you stick with your savings account, you could end up losing out on huge profits over time.
You may want to switch to stocks instead.
Let’s say you currently have $50,000 in savings, but you only need $15,000 for emergency fund purposes and have no other specific expenses to save for. If so, you’re missing out on an opportunity to earn more with the remaining $35,000.
Let’s say you could earn a 4% interest rate on $35,000 over the next 10 years, even though this is unlikely because interest rates are expected to fall. This means increasing $35,000 to approximately $52,000.
Meanwhile, the average annual return on the stock market over the past 50 years was 10%. If you invest $35,000 with the same return, after 10 years you would have almost $91,000. There is a difference of 39,000 won.
That’s why $50,000 may be too much money to keep in a savings account. But it depends.
In general, aim to use your savings account for emergency funds and short-term goals. Investing your remaining money in the stock market will allow you to get more done in your time.
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