$50K in the Bank? Here's When It's Too Much -- and What to Do Instead

Having $50,000 sitting in the bank can make you feel like you've "made it." And in a way, you have. Most people don't have anywhere near that much cash.

The problem is that once your savings pass a certain point, more cash can actually start to work against you.

So when is $50K in the bank too much, and what should you do with the extra?

Let's go over some ways to turn your extra cash into a lot more cash.

The simple test: does your cash have a job?

$50,000 is not too much if you've set it aside for a purpose, like:

• Covering an emergency (job loss, medical bill, major repair)
• Paying for a big expense you know is coming soon

But if you have $50K "just in case" and don't have a plan for it, then keeping it in savings can get expensive.

Why too much cash can hurt you

High-yield savings accounts are the best place for cash you might need within a few years. But they're not made for long-term growth.

Say your account earns a 4.00% APY -- around the highest rate you can get today -- but prices go up 3% in a year. You've basically gained only 1%.

Most of us need our money to grow a lot faster than that to retire comfortably and achieve other big goals.

What to do with your extra cash: a 3-step plan

This simple plan has served me well. It could grow your money faster and save you a fortune in taxes.

1. Start moving extra cash to an IRA

An individual retirement account (IRA) is built for retirement savings. It lets you invest your money in stocks, bonds, and more. And if you follow the rules, you won't have to pay capital gains tax or dividend tax.

The best IRAs are easy to open and charge no commission for buying and selling stocks.

One of our favorite IRA providers is SoFi®. I have a SoFi® IRA, and it's both affordable and intuitive to use. My deposits even earn a 1% match from SoFi® (see terms).

And if you're new to IRAs, read up on the IRA rules to make sure you're eligible and avoid unnecessary taxes and penalties.

2. Buy some simple investments

Once you've moved money from savings to an IRA, it's time to put it to work by investing.

You don't have to be an expert stock-picker to invest. You can start by purchasing some exchange-traded funds (ETFs) that invest in hundreds or thousands of stocks at once.

I put most of my retirement savings into a single ETF: an S&P 500 index fund. This fund invests in 500 of the biggest companies in the U.S. In the 13 years I've been investing, it's gained about 14% per year on average -- over three times as much as today's best savings accounts.

You can also mix in international stock ETFs, bond ETFs, and more for diversification.

3. Keep investing automatically

Once you start investing, it's easy to keep investing so you don't have more money piling up in savings.

If you have a 401(k) through work, you can just increase your contribution amount.

When it comes to your IRA, you can set up recurring transfers from your bank account to your IRA. Make sure the money is automatically invested in the funds you choose, too; otherwise it'll just sit in the account as cash.

Either way, you'll be investing more and more -- with no effort.

How much could your extra savings earn?

Let's say you have $50K in savings, but you only need $20K to cover an emergency and near-term goals.

That leaves you with $30,000 that could be invested for higher growth.

If that $30K earned 7% per year, it could grow to about:

• $59,000 in 10 years
• $116,000 in 20 years
• $228,000 in 30 years

That's the difference between saving and investing.

So if you have more cash than you need, then my advice is to start investing today. Your future self will thank you.