A savings account can be a great place to store your money and build up your assets for the long term. However, knowing how much you should keep in savings instead of your checking account can be tough. There’s no one answer for how much you should have in your savings account, but by analyzing your needs and understanding how savings accounts work, you can find the right balance to help you manage emergencies and save for the future.
Why should I have a savings account?
Financial institutions offer savings accounts designed to hold money over a long period of time, earning interest along the way. Savings account interest rates are often higher than those of a checking account. Savings accounts may limit the number of withdrawals you can make each month, so they're not designed for everyday spending. The money you store in a savings account can help you create financial stability.
How much money should you have in a savings account?
The amount of money you should have in your savings account varies based on the purpose of the account.
Keep an emergency fund
Unforeseen events like a layoff, medical emergency or natural disaster can disrupt your life and your budget. A savings account can take some of the stress off by helping pay for living expenses during these types of events. You might aim to have 3–6 months of living expenses in a savings account, just in case.
Reach short-term goals
Some people like to open savings accounts specifically designed to hold funds for big purchases or events. You might be planning a wedding, an extensive home repair or a well-earned vacation. A savings account can separate this money from your everyday funds so you can reach your goals quicker.
Support your budget
There's no limit to how much you can have in a savings account. Some people feel more comfortable putting more into savings than the minimum requirement, just in case an expense arises that might take away from other savings goals. It all comes down to your family's budget and how you regularly spend your money.
Factors that affect how much you should save
When calculating how much to keep in a savings account, these factors can give you a roadmap based on your specific circumstances:
- Income stability: Your type of job may determine how much you want in savings. If you're a freelancer whose income varies based on your current work, you may want to save more so you're covered if business starts to slow down.
- Household needs: Do you have a large family, or are you only financially responsible for yourself? If you're supporting multiple people, you may need more savings to cover potential expenses.
- Recurring expenses: Calculate all the payments you make regularly to maintain your standard of living. This includes rent, mortgage payments, car payments or utility bills. You may want to make sure you have enough to cover these expenses in the event of a job loss and you need to dip into your savings.
- Health coverage: Healthcare costs can be a major expense in any household budget. For example, if you have a high-deductible insurance plan, you might use your savings to cover medical costs until your coverage kicks in.
Looking beyond your savings account
Once you've built up an emergency fund, you may want to look at other options for what to do with your extra funds. You can always keep building your savings, but you might find better returns and interest rates by placing your money elsewhere.
Certificates of deposit
If you know that you're not touching the money in your savings for a specific amount of time, consider placing it in a certificate of deposit (CD) account. CDs may offer higher interest rates than standard savings accounts in return for not withdrawing the funds until the end of the term. This can be a short period of time, like a few months, or a longer period of a few years. If you withdraw before the term ends, you may have to pay a fee.
Investment accounts
Longer-term savings goals like buying a house or planning for retirement may be better suited for a dedicated investment account. These accounts place your money in the stock market with the goal of growing assets over time. You may want to meet with a dedicated financial advisor to figure out the best investment strategy for you.
Tips for building and maintaining savings account
Setting up a savings account strategy may seem challenging, but these tips can help provide practical ways to save in your everyday life.
- Automate transfers into savings: If you're paid by direct deposit, you may be able to automatically have part of your paycheck sent to your savings account. You can also schedule transfers automatically between your checking and savings accounts.
- Adjust your savings goal after life changes: Your savings plan isn't set in stone. Major life changes like the birth of a child or the death of a loved one may necessitate increasing or decreasing how much you put in savings every month.
- Compare interest rates: Banks may not all offer the same interest rate for their savings accounts, and rates may change without warning. Check to see where your savings have the highest rate of return.
- Keep savings in a separate account to avoid dipping into it: Keeping your savings separate from your everyday spending is key to maintaining a healthy budget.
Start saving today
Your savings account should work for you. How much you put in can vary based on your age, needs and future plans. Start small and don't get overwhelmed. By opening a savings account, you can help set yourself up for future financial security.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
