The Surprising Drawback of Having More Than $20,000 in Your Savings Account

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Last year, the Federal Reserve reported that as of 2022, 37% of Americans could not cover a $400 emergency expense by tapping their savings. When I read that, I was disturbed but not shocked. I can’t tell you how many people I know personally who have no choice but to whip out a credit card every time an unplanned expense arises. So if you have a pretty large savings account balance, you’re clearly in better shape.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
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Click here to read our full review for free and apply in just 2 minutes. But it may surprise you to hear that having too much money in savings can be a bad thing as well. And if your savings account balance has reached or surpassed the $20,000 mark, it may be time to rethink your strategy.The problem with having too much money in savingsIt’s definitely a good thing to have more than $20,000 to your name. But whether you should have that much money in a savings account is a different story.There are plenty of savings accounts that are paying somewhere in the ballpark of 4%. And if yours is paying less, click here for a list of the top high-yield savings accounts today and consider a switch.But you should know that over the past 50 years, the S&P 500’s average annual return has been 10%, accounting for years when stock values soared and years when they tanked. That’s much higher than the 4% you might get from a savings account today.And also, remember that 4% savings account rates aren’t even the norm. You might manage to get 4% from a savings account for a bit longer. But as the Fed continues to lower its benchmark interest rate, which is expected to happen more in the coming year, savings accounts will likely start paying less and less.For this reason, you should only keep money in a savings account you need for emergencies or short-term goals. If that means you need a $20,000 balance (or more), so be it.But if your savings account is overfunded, click here to review our list of the best brokerage accounts and move your extra money into a stock portfolio so it’s able to grow at a more impressive rate.How much savings do you actually need?A general rule of thumb for an emergency fund is to have enough money in savings to cover three to six months of essential bills. So if your basic expenses come to $5,000 a month, then $20,000 (or more) may be an appropriate amount of money to keep in a savings account. It could, conceivably, take several months to find a job after losing one, so that protection is very helpful.But if your essential bills come to $2,500 a month, even a six-month emergency fund only requires $15,000. If you don’t have another short-term goal you’re saving for, and you have $20,000 or a bit more in savings, moving your remaining funds into a brokerage account or IRA for your retirement could be a very smart move.Say you have $5,000 in your savings account beyond what you need for emergencies or short-term goals. If you earn 2.5% a year over the next 20 years, that grows your $5,000 into about $8,200. (And yes, there’s a good chance savings account rates will drop to 2.5% by next year.)But even if you only earn an 8% yearly return in your brokerage account, which is a bit below the stock market’s average, in 20 years, your $5,000 could be worth about $23,300. That’s about a $15,000 difference.You might think you’re in awesome shape by having a savings account balance of above $20,000. In reality, you may be stunting your money’s growth by keeping it in the bank rather than investing it. Assess your emergency fund needs and near-term goals ASAP if you have a large savings balance, so you don’t lose out on higher returns elsewhere.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”:”

Last year, the Federal Reserve reported that as of 2022, 37% of Americans could not cover a $400 emergency expense by tapping their savings. When I read that, I was disturbed but not shocked. I can’t tell you how many people I know personally who have no choice but to whip out a credit card every time an unplanned expense arises. So if you have a pretty large savings account balance, you’re clearly in better shape.

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.

But it may surprise you to hear that having too much money in savings can be a bad thing as well. And if your savings account balance has reached or surpassed the $20,000 mark, it may be time to rethink your strategy.

The problem with having too much money in savings

It’s definitely a good thing to have more than $20,000 to your name. But whether you should have that much money in a savings account is a different story.

There are plenty of savings accounts that are paying somewhere in the ballpark of 4%. And if yours is paying less, click here for a list of the top high-yield savings accounts today and consider a switch.

But you should know that over the past 50 years, the S&P 500’s average annual return has been 10%, accounting for years when stock values soared and years when they tanked. That’s much higher than the 4% you might get from a savings account today.

And also, remember that 4% savings account rates aren’t even the norm. You might manage to get 4% from a savings account for a bit longer. But as the Fed continues to lower its benchmark interest rate, which is expected to happen more in the coming year, savings accounts will likely start paying less and less.

For this reason, you should only keep money in a savings account you need for emergencies or short-term goals. If that means you need a $20,000 balance (or more), so be it.

But if your savings account is overfunded, click here to review our list of the best brokerage accounts and move your extra money into a stock portfolio so it’s able to grow at a more impressive rate.

How much savings do you actually need?

A general rule of thumb for an emergency fund is to have enough money in savings to cover three to six months of essential bills. So if your basic expenses come to $5,000 a month, then $20,000 (or more) may be an appropriate amount of money to keep in a savings account. It could, conceivably, take several months to find a job after losing one, so that protection is very helpful.

But if your essential bills come to $2,500 a month, even a six-month emergency fund only requires $15,000. If you don’t have another short-term goal you’re saving for, and you have $20,000 or a bit more in savings, moving your remaining funds into a brokerage account or IRA for your retirement could be a very smart move.

Say you have $5,000 in your savings account beyond what you need for emergencies or short-term goals. If you earn 2.5% a year over the next 20 years, that grows your $5,000 into about $8,200. (And yes, there’s a good chance savings account rates will drop to 2.5% by next year.)

But even if you only earn an 8% yearly return in your brokerage account, which is a bit below the stock market’s average, in 20 years, your $5,000 could be worth about $23,300. That’s about a $15,000 difference.

You might think you’re in awesome shape by having a savings account balance of above $20,000. In reality, you may be stunting your money’s growth by keeping it in the bank rather than investing it. Assess your emergency fund needs and near-term goals ASAP if you have a large savings balance, so you don’t lose out on higher returns elsewhere.

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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