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It’s good to have some money in savings. But if these signs apply to you, it may be time to find another home for your cash. [[{“value”:”
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Because unplanned bills can arise at any time, it’s important to have money available in savings at all times. In fact, at a minimum, your goal should be to maintain a large enough savings balance to cover three months of essential bills.
But sometimes, it doesn’t pay to keep money in a savings account. Now for the purpose of this discussion, when we say “move your money out of savings,” we’re talking about money beyond your emergency fund. With that in mind, here are some reasons to take money out of your savings account and put it elsewhere.
1. You don’t need it for a year or two
The nice thing about keeping your money in a savings account is that you can access it at any time without worry. But if you have funds you know you won’t need for a good year or two, then it could pay to put that money into a CD — or, better yet, a CD ladder.
The benefit of opening a CD is that you’ll often score a higher interest rate on your money than what a savings account will pay you. And also, that higher interest rate is guaranteed for your CD’s term.
You may, for example, be getting 4.50% APY on your money in savings right now. But if the Fed cuts rates later this year, which it’s expected to do, your savings account might only be paying 4.00% come November or December. On the other hand, if you open a 1-year CD at 5.00% today, you’re guaranteed that 5.00% for a full year regardless of how interest rates move on a whole.
2. You don’t need it for a decade or longer
If you have money you don’t expect to need for a decade or longer, then it pays to remove that money from your savings account and invest it instead, whether in a brokerage account or an IRA if you want to set it aside for retirement. While investing your money does carry risk, if you’re doing so over an extended period of time, you’re more likely to come out ahead financially. And you might grow your money a lot further by investing it rather than keeping it in savings.
Over the past 50 years, the stock market has generated an average annual return of 10%. That accounts for years of strong performance and periods when the market was sluggish.
So let’s say you have $10,000 you know you won’t need for many years. If you were to keep it in a savings account over the next 20 years earning 4.00% (which is a generous assumption since 4.00% is a high interest rate to get from a savings account), you’d grow your balance to about $22,000. If you were to invest it at a 10% return over the next 20 years, you’d be sitting on about $67,000 instead.
3. You have the money to address an issue that could drastically improve your quality of life
Some people have a hard time taking money out of their savings account, and understandably so. When you work hard to build savings, you want to know that money is there for you when you want or need it. But if you have cash beyond your emergency fund that you could be using to better your quality of life, then it pays to move money out of your savings and spend it on something important.
Let’s say your laptop is old and constantly crashes and freezes. If that’s an item you use regularly and you have the $800 needed to replace it in savings, do so. You might save yourself aggravation on a daily basis.
This is just one example, but the point is that it’s okay to use your savings to improve your life. And you shouldn’t feel guilty about removing funds to pay for things that could free up your time or just plain reduce your stress.
It’s definitely a good idea to keep your savings account nicely loaded. But in these situations, you may want to move your money into a CD, invest your money rather than keep it saved, or take your money and spend in a way that lends to your overall well-being.
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