Money market accounts - not to be confused with money market funds - deliver yields that are typically higher than standard deposit accounts with some checking account features like bill pay and limited monthly check writing. For those living on their own, aim for the six-month figure since a second income is absent to help float you financially in an emergency situation, such as a job loss.” The Money Market-Savings Hybrid Alternative “For couples where both partners are working, you can aim for the three-month figure unless having six months of cash on hand provides you more peace of mind. “As a general rule, we often recommend that you keep three to six months of living expenses in your emergency fund,” said Christopher Stroup, a certified financial planner with Abacus Wealth Partners in Santa Monica, California.īut your household income situation will determine the amount that’s right for you. Many think you’d be safe cutting both those amounts in half. Lokenauth suggested saving enough for six to 12 months, the maximum that most financial experts recommend. You have a stable job and income, low debt and a high risk tolerance. You have specific goals like buying a house or retirement that are many years away. You are losing purchasing power to inflation over time as your cash earns little interest. You consistently have money left over after maxing out your IRA and other tax-advantaged retirement accounts each year. Your savings exceed your basic living expenses for six to 12 months. “While having an emergency fund in savings is prudent, there are signs you may be keeping too much cash there versus investing it,” said Lokenauth, who laid out the following indications that you might be overdoing it: While they’re certainly in better shape than the majority, they might be getting in their own way by sitting on too much cash in savings. About 15% have five-figure savings of $10,000 or more. While the greatest share by far - about 45% - has either nothing saved or just a few hundred dollars, the study did have a silver lining. More than half of those who have money saved saw their balances decrease by up to half or more in the same period. Roughly another one-quarter contributed less than $1,000, with single-digit percentages accounting for every amount over that. One-third of the study’s respondents contributed exactly zero dollars to their savings accounts over the past year. However, the survey shows that most people missed their chance to compound their cash with investment-grade returns. While the national average deposit yield is still a paltry 0.42%, the Federal Reserve’s war on inflation has resurrected truly high-yield savings accounts, with some offering APYs over 5%. Here are the signs that you have too much of a good thing in an overstuffed savings account. “The opportunity cost of playing it too safe with savings can be substantial over decades.” “Having excess cash beyond an emergency fund can mean missing out on potential returns from investing,” said Fluent in Finance founder Andrew Lokenauth, a 15-year Wall Street veteran who held leadership positions at JP Morgan, Goldman Sachs and Citi. ‘Get Rich Slow’: Dave Ramsey Offers the Key to Lasting Wealthīut on the other end of the spectrum are a minority of savers who squander different opportunities by hoarding too much cash in deposit accounts. But a new GOBankingRates survey of more than 1,000 people found that many missed the chance to grow their emergency funds.įind Out: 7 Frugal Habits That Aren’t Actually Good for Your Finances ![]() The last year gave savers an opportunity to cash in on the highest interest rates in decades. Having too much money in your savings account is a good problem to have - unfortunately, it’s not particularly common.
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