Is $20,000 Too Much to Have in Your Savings Account?

Savings accounts are one of the safest places to store your money. Nearly all financial institutions furnish them with FDIC insurance, which secures your deposits for up to $250,000 of protection. Plus, have you seen today's rates on savings accounts? The best high-yield savings accounts are currently paying out at rates up to 5.36%. Security plus decent returns on interest -- what could go wrong?

Few things could go wrong, to be sure. But for large amounts of money, like $20,000, a savings account might make you miss opportunities elsewhere. If you're currently holding $20,000 or more in a savings account, here's how to know if you're making the best choice.

When it's best to keep $20,000 in a savings account

Aside from earning interest, savings accounts have two major benefits: They're safe and leave money relatively accessible to you. This makes savings accounts ideal for emergency funds and certain near-term expenses, like weddings and cars.

With rates exceeding 4.5% on most savings accounts, I can't think of many other places to put $20,000. Putting your emergency fund in a certificate of deposit (CD), for instance, could end up costing you if you needed to withdraw money before maturity, as these accounts impose early withdrawal penalties. Likewise, you could lose some or all of your cash in a brokerage account if you were investing in potentially risky securities (like stocks or ETFs) on a short-term basis.

Our Picks for the Best High-Yield Savings Accounts of 2024

Capital One 360 Performance Savings APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings Member FDIC.	APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0
American Express® High Yield Savings APY 4.25% Rate info 4.25% annual percentage yield as of June 30, 2024 Min. to earn $1 Open Account for American Express® High Yield Savings Member FDIC.	APY 4.25% Rate info 4.25% annual percentage yield as of June 30, 2024	Min. to earn $1
Citizens Access® Savings APY 4.50% Min. to earn $0.01 Open Account for Citizens Access® Savings Member FDIC.	APY 4.50%	Min. to earn $0.01

Perhaps the only bank product that rivals savings accounts for emergency funds and near-term expenses is a money market account. These accounts can one-up savings accounts in that they come with check-writing privileges (sometimes even debit cards), which greatly streamlines your ability to withdraw money. However, money market accounts may have their own weaknesses, such as higher deposit and balance requirements and monthly service fees. But it's worth comparing them to savings accounts, as sometimes their APYs are slightly more favorable.

When $20,000 is too much for a savings account

If savings accounts are best for near-time expenses, then a little logic will tell us they're not great for saving for long-term goals. That's pretty much the case for most people, though, as always, there are exceptions.

Take retirement, for instance. If you put $20,000 away for retirement, you might be better served by depositing it in a brokerage account. You could then invest that $20,000 in securities with more upside potential, like stocks, bonds, or mutual funds. This is especially relevant if your retirement is decades away, as you can mix time and compound interest to grow your money much more than a savings account could.

On the flip side, if you're still saving for retirement, but your golden years are already starting to dawn, I wouldn't rule out a savings account yet. In this case, retirement would fall into a "near-term goal," which could make savings accounts a useful instrument for money you don't want to risk in the stock market.

That said, rates on savings accounts have one major weakness: They're variable, meaning banks can choose to change them at any time. If you suspect interest rates will fall in the near future, you might be better served by a fixed rate product, like a certificate of deposit (CD). Interest rates on the best CDs are as high as savings accounts these days, but they won't change for the duration of your term. You can lock in today's high rates for a lengthy period, like five years, or take advantage of them for terms as short as one month.

All in all, depositing $20,000 in a savings account can be wise if you have a short-term plan for the money. Your deposit will be safe and you can generate decent amounts of interest in the meantime. However, if you have $20,000 more than your emergency fund, spreading this money around other accounts -- CDs, brokerage accounts, money markets -- might make more sense. There's not a one-size-fits-all solution, but consider all your options if you feel like your savings account is overfunded.