Can you have too much money in your savings account?
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As the economic crisis continues to spread across the country, more Americans are taking the time to learn how to better manage their finances.
While it is essential to have stable savings to rely on for a healthy financial future, dedicated savers should be aware that there is such a thing as having too much money saved.
Accumulating your money and letting your savings balance get too high can actually cost you money.
When you keep your money in a savings account, even a high efficiency counts as the Ally Online Savings Account or Marcus High Yield Online Savings by Goldman Sachs – over time you will miss out on earning a better return on your money and making it grow like you would if you were investing.
If a high yield savings account yields a 1% return and an average inflation of almost 3%, you are not keeping up with the cost of living. In the long run, your money loses its value and purchasing power.
Another red flag that you have too much money in your savings account is if you go over the limit of $ 250,000 set by the Federal Deposit Insurance Corporation (FDIC) – obviously not a concern for the average saver. Most savings accounts will insure your money for up to $ 250,000 per account holder for each account, but anything over this amount is not guaranteed to be refunded in the event of something going wrong, such as bankruptcy. bank.
the guidelines fluctuate depending on each individual’s situation. Given the current economic uncertainty, you may want to save up to a year of your basic living expenses (excluding discretionary expenses) if you are concerned that your job will be less stable. The idea is that you have enough cash on hand that you can tap into when you need it without having to rely on credit card or one Personal loan.
A savings account is also useful for covering all of the immediate financial goals you want to achieve over the next two years. You can access your money whenever you want, and in the meantime it is in a stable FDIC Insurance Account.
Once you’ve saved enough for an emergency fund, you can focus more and put your extra money elsewhere, whether it’s to meet a short-term goal or invest your extra money in stock exchange.
Once you have the savings safety net in place, you should take the time to think carefully about your most important goals and how you can use the money to achieve them.
Investing your money in the market can help you achieve your longer term goals faster. Although it involves more risk than keeping money in a high yield savings account, investing has the potential to offer a much greater reward.
You can start by setting up a brokerage account with companies like E * TRADE, Fidelity, Charles Schwab or Vanguard. If you want to have less control over the management of your investment accounts, let a robot advisor, like Improvement, Wealth front and Ellevest, do the investment work for you.
No matter where you are on your financial journey, remember that the process takes time. Making a plan is the first step, and it’s important to give yourself credit even for small wins.
Information about the Marcus by Goldman Sachs High Yield Online Savings Account and Ally Online Savings Account was independently collected by CNBC and was not reviewed or provided by the Issuer prior to publication.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.