Is $100,000 Too Much to Have in Your Savings Account?

Having $100,000 in your savings account is an impressive achievement, and it's far more than what most people have saved. The median savings account balance is $1,200, according to a study last year by The Motley Fool Ascent. Since interest rates are so high right now, you could also be earning a good return on that money.

But that doesn't necessarily mean you should keep $100,000 in your savings account. Depending on your financial goals, there could be better ways to use your savings.

Do you need $100,000 in savings?

Your savings account is the place for your emergency fund and upcoming savings goals you have. Savings goals can be any upcoming expenses you'll have in the next five years or so, such as travel or home renovations. For anything further out than that, such as retirement, investing is the better choice for the higher returns it offers.

If you're going to need $100,000 or more in the near future, then it's fine to have that much money in your savings account. There's one situation, in particular, where people often need this much or more in savings: when they're planning to buy a home.

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The median home sales price was $420,800 in the first quarter of 2024, according to the Federal Reserve Bank of St. Louis. In major cities, homes can easily cost two- or three-times that. If you want to buy a home, then having a large amount of savings is important. You'll need enough to cover a down payment, while still maintaining your emergency fund.

If you're unsure how much to keep in your savings, add up how much you'll need for your emergency fund and your savings goals. It's good to do this at least once a year to make sure you have your money in the right places.

When oversaving becomes a problem

A $100,000 savings account balance is fine if it aligns with your goals. But it could be a red flag if you don't need that much money there.

Some people put all their extra money in their savings accounts because they feel as if it's the safest option. They'd rather do that than take on any risk. This can end up costing you a substantial amount, because you can get a much higher return by investing your money.

Right now, the best high-yield savings accounts are offering rates of over 5%. Those are spectacular rates for savings accounts, but the U.S. stock market has an average annual return of about 10%, stretching back decades. Also, keep in mind that 10% is average for the stock market, whereas 5% is extremely high for a savings account.

To give you an idea of how much oversaving can cost you, let's look at how much $100,000 would grow over 30 years, depending on the annual return:

• At a 2.5% annual return for 30 years, you'd have $209,757.
• At a 5% annual return for 30 years, you'd have $432,194.
• At a 10% annual return for 30 years, you'd have $1.74 million.

In the first scenario, you keep your money in a savings account that gets a reasonable return for the entire 30 years. In the second, you keep it in a high-yield savings account earning 5% that whole time. That's extremely unlikely, but it's just for comparison's sake. And in the third, you invest your money and get the stock market's average return.

As you can see, you can build much greater wealth by investing -- over $1.3 million more! This is why it's widely recommended to invest your retirement savings and not just put it in a savings account.

Take a balanced approach with your money

Your savings account is an important part of your finances, and there's nothing wrong with having a healthy amount there. Just be careful not to overdo it.

You'll also need money in your checking account to cover your bills. And you'll need money invested, through retirement accounts and taxable brokerage accounts, to build long-term wealth.

The easiest way to keep your finances balanced is to contribute to your savings and your investments every month. If you're currently oversaved, also consider shifting some of that money to investments to balance it out.