How to Know When You Have Too Much Money in Your Savings Account (2024)

The Motley Food Ascent conducted a survey in July 2023 showing that the typical American has $1,200 in their savings account. I quote that statistic only to make this point: Most of us don't have as much savings as we'd like, but we're working on it. If that's the boat you're in, don't be discouraged. At some point, you're likely to have more than enough -- even if it takes a while to get there.

But what is "more than enough"? How will you know when you've saved enough money and it's time to change strategies? Here's how to tell.

Your emergency fund is set

The rule of thumb is to have enough money tucked away in a savings account to cover between three and six months' worth of bills. Whether it's an illness, job loss, or a major household repair, an emergency fund should carry you through until you're back on your feet.

However, once your emergency fund is set, it's time to consider putting any additional money to work for you. You definitely have options. While there are risks associated with investing the funds, the rewards have historically been high. However, if you aren't up for any risk-taking right now, money market accounts (MMA) are FDIC-insured and currently offer great rates.

You're carrying high-interest debt

If your emergency fund is set, there's no reason to keep building savings until you've paid off high-interest debt. Let's say you put money into an MMA or a high-yield savings account earning 5% interest, but still carry a credit card balance with an interest rate of 20%. No matter how you slice it, you're losing money each month.

You should divert any money you would have added to your savings to pay off debt. Once the debt is out of the way, you can focus on growing your money.

Let's say your savings goals are as follows:

• Have enough money put away to cover an emergency situation
• Save enough to pay for a dream vacation in three years
• Squirrel away enough to throw a 50th-anniversary party for your parents in five years
• Save enough to help pay any medical expenses you may face when you retire in 15 years

Since you have time to save for the last three goals, there's no reason to allow the funds to sit around in a traditional account. For example, you can look for the highest rate you can find on certificates of deposit (CDs) and stagger the CDs so their terms expire before it's time to cover the cost of each goal.

You've exceeded FDIC limits

If you've exceeded the limit of $250,000 per depositor per account insured by the FDIC, congratulations are in order! Now it's time to take any funds beyond that FDIC limit and find another way to make it grow. If you're determined to avoid risks, opt for a CD, MMA, or high-yield savings account. If you're comfortable with a measure of risk, speak with a financial advisor about investing in the market. Whichever path you choose, you'll know that your money is hard at work for you.

You're keeping money in the wrong account

And finally, if your funds are deposited in a traditional savings account, you're losing money. Most savings accounts earn little to no interest and don't keep pace with inflation. Any money you have put away today will be worth less next year due to inflation. However, the problem is nothing new.

Throughout American history, there have only been a handful of times when there has been no inflation. Unless a bank paid a great interest rate on its traditional savings account, savings simply could not keep up with inflation. This may help explain why investing became so popular among those with money to spare.

Today, if your savings are sitting in a traditional account, there's good news: You can move it to a better account. For example, a high-yield savings account offered by an online bank currently earns a much higher interest rate, your money is safe, and you can access it when needed.

No matter how much money you have in your savings account, you know you have too much if it's not earning you more than enough to keep up with inflation.

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