This Little-Known Risk of Putting Money Into Savings Could Hurt You

You'll often hear that it's important to have money in your savings account at all times for emergencies. And that advice is spot-on.

You never know when life might throw you a curveball, whether in the form of an unplanned home repair or the loss of your job. And you don't want to have to resort to credit card debt due to not having savings.

At a minimum, your goal should be to save enough money to be able to cover three months of essential living expenses. But if you're able to save beyond that point, you might assume that's a smart thing to do. After all, the more cash you have in the bank, the better, right?

Well, not necessarily. Though it is a good idea to have extra emergency savings -- say, six to 12 months' worth if you want that added protection -- there does come a point when it pays to reconsider putting money into the bank.

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

SoFi Checking and Savings APY up to 4.60% Rate info You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet. Min. to earn $0 Open Account for SoFi Checking and Savings Member FDIC.	APY up to 4.60% Rate info You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.	Min. to earn $0
Synchrony Bank High Yield Savings APY 4.75% Rate info Our Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC Min. to earn $0 Open Account for Synchrony Bank High Yield Savings Member FDIC.	APY 4.75% Rate info Our Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC	Min. to earn $0
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

You don't want to sell yourself short

The amount of interest you'll earn on your savings will hinge on what banks are paying. Savings account rates aren't set in stone, and they can fluctuate over time.

Right now, a number of high-yield savings accounts are paying upward of 3% and even 4%, but a couple of years ago, that was far from the case. And if you keep too much cash in the bank, you might really stunt your money's growth.

In fact, let's say you spend $5,000 a month on essential bills and decide you really need a six-month emergency fund. That's understandable. But if you have $50,000 in savings, what you may want to do is leave $30,000 in the bank and put the remaining $20,000 into a brokerage account. Doing so could help you grow that money into a much larger sum over time.

Let's say you're earning 4% on interest on your savings, and that rate remains in effect for the next 15 years. If you were to keep your extra $20,000 in the bank, it would grow into $36,000. So in that case, you'd gain $16,000.

Meanwhile, the stock market, as measured by the performance of the S&P 500 index, has generated an average annual return of 10% over the past 50 years (before inflation). If you were to invest $20,000 at a 10% return over a 15-year time frame, you'd grow it into about $83,500. That's a gain of $63,500. So all told, you'd come out $47,500 ahead compared to keeping that money in a savings account paying 4% -- and that's if you're able to even get 4% on your cash in savings for that long.

Put your money to work

You should absolutely prioritize your emergency fund over investments in your brokerage account. So if you don't yet have enough cash in the bank to cover three full months of bills, put every extra dollar you get into your savings.

But once your emergency fund is set, it pays to invest your extra money in stocks and other assets that have the potential to deliver much higher returns. If you leave too much money in savings, you might end up unhappy with the amount of wealth you accumulate over time.