How Much Money to Keep in Savings

A savings account is a valuable tool that can help you achieve your long-term goals and increase your financial security, but you need some money in the account if you want it to work for you. A lot of people are uncertain of how much money to keep in savings, and the answer is that it depends on your situation. Here's what you need to know.

How much should you keep in your savings account?

Savings accounts are ideal for storing your emergency fund and money you plan to use in the near term for large purchases. We'll look at both of these below.

How much should you keep in your emergency fund?

Your emergency fund should contain three to six months of living expenses that you can draw upon to help you cover unexpected bills. Some people prefer to keep more than this in their emergency fund, especially if they believe they'd have trouble finding a new position after a job loss.

It's up to you to decide which bills to include in your emergency fund. You can count all your monthly costs, including extras like streaming services. Or you can limit yourself to the essentials. Just know that if you have a bare-bones emergency budget, you may have to cut some discretionary spending from your budget if you fall on hard times.

How much should you keep in savings for your long-term goals?

Savings you intend to use to make a down payment on a house, buy a new car, or take a vacation are usually best kept in a bank account where you can access them easily. How much you save will depend on the cost of the purchase in question.

Some high-yield savings accounts include an envelope-style savings feature that lets you separate your savings for individual goals. This may be useful to those saving for multiple things at once.

Can you keep too much money in savings?

Most savings accounts are FDIC-insured, which means they protect your money up to $250,000 per depositor per account. This means that if you have an individual savings account and the bank that provides it goes out of business, the FDIC will pay you back up to $250,000 for your losses. If you have a joint savings account, it'll reimburse you up to $500,000.

But if you exceed the FDIC insurance on your account, you risk losing that extra money if your bank fails. You're better off spreading your savings between several banks so all your money is FDIC-insured.

Another thing to keep in mind is that savings account annual percentage yields (APY) are pretty low. Even the best savings accounts usually can't keep up with inflation. That's why it's best to invest money you don't plan to use within the next five years or so. You'll probably earn more this way, and that can reduce the savings burden on you.

How to grow your savings account

Here are a few strategies that can help you boost your savings account balance:

Choose a savings account with a high interest rate

One of the easiest ways to grow your savings is by choosing the right account. Typical brick-and-mortar savings accounts offer APYs of 0.07% or less. By contrast, high-yield savings account rates can be 10 times higher than that. That makes a huge difference in how much interest you'll get in a year. If you want to estimate how much you'll earn from your savings account, check out our guide on how to calculate your savings interest rate.

It's not necessary to find the account with the highest available APY. You just need one with a good interest rate. Banks can change these rates at any time, so what's the highest today may not be the highest tomorrow.

Avoid fees whenever possible

Some savings accounts charge monthly maintenance fees or excess withdrawal fees if you take money out of your savings account more than six times per month. Understanding these fees can help you avoid them. For example, limiting your withdrawals or keeping your balance high enough to waive the maintenance fee can help you hold onto more of your savings. You could also switch savings accounts to avoid fees, as well.

Set up automatic transfers

Some banks enable you to automatically transfer funds from your checking account to your savings account. This is smart if you can afford to do it. You won't have to worry about forgetting to make these transfers yourself or accidentally spending money intended for savings.