Why $50K in Savings Is Probably Too Much
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Holding on to $50,000 or more in your savings account? Congratulations -- having a ton of cash saved up is never a bad thing.
The truth, though, is that most of that money is probably better off elsewhere. Once you've built up your emergency fund -- say, three to six months' worth of expenses -- you can use your cash in other ways and earn a much higher return.
Here's where to put your extra savings.
Three great places to put excess cash
1. Individual retirement accounts (IRAs)
Want a better way to invest in your future?
IRAs are the perfect way to save for retirement because of their tax advantages -- namely, the fact that they're exempt from capital gains and dividends taxes. Over years and decades, that can mean savings in the five or six figures.
With an IRA, you can buy stocks, bonds, mutual funds, and more. I recommend starting here -- use your excess cash to max out your IRA and start enjoying valuable long-term growth.
Ready to start saving for retirement? Open one of our favorite IRAs today.
2. Brokerage accounts
Like IRAs, brokerage accounts let you invest in stocks, bonds, mutual funds, and more. They don't offer the same tax breaks as IRAs, but they're open to everyone (you don't need an income) and you can invest as much as you want (there are no yearly contribution limits).
By investing in an index fund, like one that tracks the S&P 500, you can be confident that your money will grow steadily over time. It's a great "set it and forget it" investing option.
3. Certificates of deposit (CDs)
With CDs, you'll lock up your money for a given term -- months or years -- in exchange for a guaranteed return. They're a good place for medium-term cash you don't need immediate access to.
For example, you might put $10,000 in a 1-year CD that earns 4.00% APY. Once your CD matures after the full year, you'll get your money back, plus 4.00% in interest -- a total of $10,400.
CDs are an especially good idea when interest rates are expected to fall (like they are now). While the APY on your savings account drops, your CD rate is locked in for the duration of your term, whether that be a few months or several years.
Ready to get started? See our full list of the best CDs and lock in a high rate today.
When to hold on to your cash
A solid emergency fund is enough for most people, but there are some legitimate reasons to hold on to more cash.
If you're saving up for a big purchase, for example, keeping more in your account might make sense. Or you might want to keep more cash on hand to stay flexible during a new home purchase.
Beyond that, though, holding $50,000 or more in a standard savings account is a missed opportunity.
For the cash in your emergency fund, consider opening a high-yield savings account (HYSA). At the moment, top HYSAs are offering APYs of 3.80% or higher, making them the perfect place to keep short-term savings.
I still don't recommend it for long-term investing -- for that, IRAs and brokerages are a much better fit. Otherwise, though, HYSAs are a perfect place for your loose cash.
Our Research Expert
Ryan Wilcox is a full-time Personal Finance Writer at Motley Fool Money, covering credit cards, bank accounts, investing, auto insurance, and other personal finance topics. Ryan has been writing about credit cards and savings since 2022. Before joining Motley Fool Money, he was a full-time writer at The Points Guy, where he focused on maximizing credit card rewards and travel strategies. He holds a bachelor’s degree in English and American History from the University of North Carolina at Chapel Hill, where he also spent four years reporting for The Daily Tar Heel. With a background in both journalism and consumer finance, he brings a clear and thoughtful voice to money topics. Outside of work, Ryan is likely reading, writing, or updating his Letterboxd account.