Here’s the Real Cost of Having Too Much in Your Savings Account

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Savings are wonderful things. Last month, my boiler exploded and burst a bunch of pipes. Those kinds of emergencies are never fun, but the fact that I had cash in my emergency fund made it less stressful. I could pay for the plumber, builder, and emergency gas repairs without using my credit card.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes. The high interest rates we’ve seen in the past few years mean there’s another bonus to having savings: the best high-yield savings accounts pay great interest rates. Recently, we’ve seen APYs of 4% or 5% or more. If you’ve got $8,000 in savings, you could have earned at least $320 in interest earnings for 2024.But savings accounts are only one financial tool. And if you keep too much money in yours, you could be missing out on returns from investing.Here’s how you can have too much in your savings accountIt’s important to give each bucket of your money a purpose so that you can put it to work effectively. For example, checking accounts rarely pay enough interest to stay ahead of inflation. But they are an extremely useful way to manage all your everyday transactions.Savings accounts are a great place for cash you might need to access quickly. Importantly, they are safe — your balance won’t fluctuate if the stock market performs badly and most accounts are covered against bank failure by FDIC insurance. Plus, some high-yield savings accounts are still paying APYs of over 4% right now. Click here to learn more about how this no-monthly-fee account could be a good home for your savings.But the rate you’ll earn on your savings — even money in a high-yield account — won’t be enough to build your retirement nest egg. The ideal is to keep around three to six months’ worth of living expenses in your savings account. But if you put too much in there, you’re missing out on the potential gains you’d get from investing.Investing carries more risk, but over time you can earn higher returns. If you’re thinking long term, investing is a proven way to build wealth. Even so, it doesn’t make sense to put your emergency fund in a brokerage account because the value of your portfolio can change from day to day. If you face an unexpected financial crisis, you might be forced to sell assets at a loss.To summarize where your money goes:Checking account: Everyday spending money. Low risk with extremely low returns.Savings account: Cash you might need in the short to medium term. Low risk with limited returns.Investment account: Longer-term wealth building. More risk with potential for higher returns. Click here for our selection of the best low-fee brokerage accounts.A few percentage points makes a lot of differenceThe potential return on your investments depends on your strategy, how much risk you’re willing to take, and the way you manage your portfolio. Many financial planners use an average 8% investment return as a rule of thumb.That’s a pretty realistic figure. The S&P 500 — often used as a benchmark for stock market performance — has averaged an 8% annual return over the past 100 years or so.In contrast, the FDIC says average savings account APYs are just 0.43% right now. High-yield accounts pay more, but there’s a strong chance savings rates will fall further next year as the Fed continues to cut its benchmark interest rate.You’re unlikely to be able to earn 4% on your savings for the coming 20, 30, or 40 years. But for the sake of simplicity, let’s assume you can. Let’s say you save or invest $500 a month. Here’s roughly how much your balance might grow at different rates over time.Timeframe4% APY8% APY10 years$72,000$87,00020 years$179,000$275,00030 years$337,000$680,00040 years$570,000$1,554,000Data source: Author calculations using Investor.gov compound interest tool.Inflation will eat into your savingsInflation is the boogeyman for savers and investors alike. As prices increase, the money you’ve saved won’t go as far. In summer 2022, inflation hit a 40-year high at 9.1% — way ahead of even the highest savings account APYs.If the APY on your savings account is not as high as the rate of inflation, you’re effectively losing money. That’s the real cost of having too much in your savings account. Not only are you not earning the returns you might get from your investments in the long term, but you could also be falling behind any inflationary tides.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.”}]] [[{“value”:”

Savings are wonderful things. Last month, my boiler exploded and burst a bunch of pipes. Those kinds of emergencies are never fun, but the fact that I had cash in my emergency fund made it less stressful. I could pay for the plumber, builder, and emergency gas repairs without using my credit card.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

The high interest rates we’ve seen in the past few years mean there’s another bonus to having savings: the best high-yield savings accounts pay great interest rates. Recently, we’ve seen APYs of 4% or 5% or more. If you’ve got $8,000 in savings, you could have earned at least $320 in interest earnings for 2024.

But savings accounts are only one financial tool. And if you keep too much money in yours, you could be missing out on returns from investing.

Here’s how you can have too much in your savings account

It’s important to give each bucket of your money a purpose so that you can put it to work effectively. For example, checking accounts rarely pay enough interest to stay ahead of inflation. But they are an extremely useful way to manage all your everyday transactions.

Savings accounts are a great place for cash you might need to access quickly. Importantly, they are safe — your balance won’t fluctuate if the stock market performs badly and most accounts are covered against bank failure by FDIC insurance. Plus, some high-yield savings accounts are still paying APYs of over 4% right now. Click here to learn more about how this no-monthly-fee account could be a good home for your savings.

But the rate you’ll earn on your savings — even money in a high-yield account — won’t be enough to build your retirement nest egg. The ideal is to keep around three to six months’ worth of living expenses in your savings account. But if you put too much in there, you’re missing out on the potential gains you’d get from investing.

Investing carries more risk, but over time you can earn higher returns. If you’re thinking long term, investing is a proven way to build wealth. Even so, it doesn’t make sense to put your emergency fund in a brokerage account because the value of your portfolio can change from day to day. If you face an unexpected financial crisis, you might be forced to sell assets at a loss.

To summarize where your money goes:

• Checking account: Everyday spending money. Low risk with extremely low returns.
• Savings account: Cash you might need in the short to medium term. Low risk with limited returns.
• Investment account: Longer-term wealth building. More risk with potential for higher returns. Click here for our selection of the best low-fee brokerage accounts.

A few percentage points makes a lot of difference

The potential return on your investments depends on your strategy, how much risk you’re willing to take, and the way you manage your portfolio. Many financial planners use an average 8% investment return as a rule of thumb.

That’s a pretty realistic figure. The S&P 500 — often used as a benchmark for stock market performance — has averaged an 8% annual return over the past 100 years or so.

In contrast, the FDIC says average savings account APYs are just 0.43% right now. High-yield accounts pay more, but there’s a strong chance savings rates will fall further next year as the Fed continues to cut its benchmark interest rate.

You’re unlikely to be able to earn 4% on your savings for the coming 20, 30, or 40 years. But for the sake of simplicity, let’s assume you can. Let’s say you save or invest $500 a month. Here’s roughly how much your balance might grow at different rates over time.

Inflation will eat into your savings

Inflation is the boogeyman for savers and investors alike. As prices increase, the money you’ve saved won’t go as far. In summer 2022, inflation hit a 40-year high at 9.1% — way ahead of even the highest savings account APYs.

If the APY on your savings account is not as high as the rate of inflation, you’re effectively losing money. That’s the real cost of having too much in your savings account. Not only are you not earning the returns you might get from your investments in the long term, but you could also be falling behind any inflationary tides.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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