Is $50,000 Too Much Money to Keep in a Savings Account?

When it comes to having money in a savings account, you'd think "more" would equal "better," right? In other words, it's better to have $20,000 in savings than $10,000, and it's better to have $10,000 than $1,000.

That logic holds true up to a point. And depending on your situation, $50,000 in savings may be well beyond that point.

Do you need to keep $50,000 in cash?

Savings accounts are great in that they pay you interest without forcing you to take on the risk of investing money in stocks or other assets that could lose value. And at times, the amount of interest they pay can be generous -- like right now, when many high-yield savings accounts are paying upward of 4%. 

But there can come a point when you have too much cash in savings. And $50,000 may be excessive, depending on your situation. 

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Or, it may not be. 

See, it's important to have enough money in an emergency fund to cover three to six months of essential bills. And a savings account is the best place for an emergency fund. But if you're aiming for a five-month emergency fund and your essential bills come to $10,000 per month, then you're right on track with a $50,000 balance.

Similarly, a savings account is a great place to put money you're stashing away for a near-term goal. Let's say you want to put in a pool this year, and you've been quoted a price of $60,000. You have $50,000 now, so you need to save up another $10,000. In that scenario, you're doing the right thing by keeping your $50,000 in savings while you work to come up with the remainder. 

However, if you don't need $50,000 in emergency savings, and you're not saving for a near-term goal, then that sum of money may be too much to be keeping in the bank. In fact, sticking with a savings account could cause you to lose out on massive gains over time.

You may want to turn to stocks instead

Let's say you have $50,000 in savings now, but you only need $15,000 of that for emergency fund purposes and you don't have another specific expense you're saving for. If so, you're losing out on the chance to earn a lot more on your remaining $35,000.

Let's imagine you can snag a 4% interest rate on that $35,000 for the next 10 years, even though that's unlikely since rates are expected to fall. That would mean growing your $35,000 to about $52,000.

Meanwhile, the stock market's average annual return over the past 50 years has been 10%. If you were to invest $35,000 at that same return, in 10 years, you'd be looking at almost $91,000. That's a difference of $39,000. 

It's for this reason that yes, $50,000 may be too much money to keep in a savings account for you. But it'll depend on your circumstances.

In general, aim to use your savings account for your emergency fund and near-term goals. Put the rest of your money into the stock market, so you're able to do a lot more with it in time.