5 Signs You’re Keeping Too Much in Savings

A man sitting in an office looking intently at his savings accounts on his laptop.

If you've saved significant amounts of money, whether for short-term or long-term goals, bravo! You're well ahead of many other Americans. However, just like other aspects of life, it's possible to have too much of a good thing.

Saving to prepare for emergencies, retirement or financial goals like buying a house is smart, to be sure. But if you're saving far more than necessary, you could be sacrificing other important aspects of your financial health, and that extra money could be put to better use elsewhere. Here are five signs you might be keeping too much money in savings.

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1. You Aren't Exhausting Your Employer Match

One of the most appealing benefits an employer can offer is matching employee contributions to retirement accounts such as 401(k)s. Typically, to receive this perk, you're required to contribute a minimum percentage of your paycheck to your employer-sponsored retirement account. In exchange, your employer also contributes as an incentive to fund your retirement account. Some employers might match your contributions dollar-for-dollar, while others give a percentage up to a certain amount.

If you have plenty of money in savings but aren't contributing very much to retirement—particularly if you're not contributing enough to earn the full benefit of your employer match—you might have too much in regular savings. Maxing out your retirement match helps expedite your retirement account growth.

2. Your Emergency Fund Exceeds Your Needs

Having an emergency fund is a critical way to protect yourself from unexpected job loss or major expenses you haven't budgeted for, such as a costly car repair or emergency vet or medical bill.

Experts generally recommend building enough savings in your emergency fund to cover three to six months of living expenses. Others believe you should have six to 12 months of savings in place; essentially, it can vary based on your situation and household. But the goal remains the same: Should you lose your job or have to stop working due to a family or personal emergency, this will tide you over and avoid reliance on debt until you get back on track.

As you consider whether your emergency fund is maxed out or not, it may help to add up your expenses and consider what types of emergencies are likely to happen (and what they would cost). Once you make a realistic goal for this emergency savings and reach that amount, you can put that money to work in other areas that are lacking. Perhaps it's time to consider buying some stocks or mutual funds, upping your retirement contributions or starting a college fund for your kids.

3. You Don't Have Specific Savings Goals

So you've reached your emergency fund goal, leaving you prepared for a job loss or massive surprise bill. Great job—but what about other extra money sitting in savings accounts?

If you have any planned short-term or medium-term expenses, such as a house down payment, wedding or family vacation, it's smart to establish a separate savings account as a sinking fund to help you work toward a specific goal.

If you don't have a plan for that money anytime soon, though, it may not benefit you to keep that much in liquid cash. Should inflation rise, you might lose some of your cash's spending power over time. Extra money might go further in a certificate of deposit if you're risk-averse, or invested in the stock market if you're willing to take a higher risk for a potentially higher reward. You might also consider putting surplus savings toward retirement in a 401(k) or individual retirement account (IRA), or a health savings account.

4. You Have Debt Balances

Carrying debt isn't always a bad thing; it's common to have a car or mortgage payment, and as secured, long-term debts, they usually have reasonable interest rates. But other types of debts can come with hefty interest rates, such as some credit cards and loans. If your interest rate is steep and you carry a large balance, the amount you owe may rise faster than you can pay it off. When you have spare funds sitting in savings, you'll save money by paying off the debt and no longer owing interest on it.

Additionally, having too much debt can make you look riskier to lenders and creditors. It can increase your credit utilization rate and result in a lower credit score. If you have excess savings along with high debt balances or high-interest debt, consider repaying debts to reduce the costs of borrowing and ensure your credit score is in top shape.

5. You're Keeping Money in Traditional Savings Accounts

For many years, interest rates were low, making it cheap to borrow but hard to earn any interest on savings. Now, interest rates are the highest they've been in years, so it's more costly to borrow but far more rewarding to save.

That said, traditional savings accounts continue to generate little interest. They're not meant to be money-makers, but a safe place to stash money outside of a checking account. However, interest rates are currently generous on savings accounts primarily focused on earning interest, including high-yield savings, money market accounts and certificates of deposit. As of January 2024, it was common to find annual percentage yields (APYs) exceeding 5%.

It could be that you have plenty of savings overall, and that money in traditional savings is better served being invested—especially if you don't currently have much invested. But if you want to keep that money in savings, ensure you're storing it in high-yield savings accounts that will grow your balance rather than traditional savings accounts that offer very little return.

The Bottom Line

Many people work so hard to build enough savings that it may sound silly to worry about having an excess.

It's really only an issue if you're saving excessively at the expense of getting out of debt, maxing out retirement matches or underutilizing investments—or if you're still using traditional savings accounts rather than maximizing your earning potential with high-yield savings accounts.