The savings account is a core bank account that is designed to be a place where you can store your money safely while earning some interest on your balance.
Because it serves as a store for your extra cash, you might wonder how much money you can put into the account. If you won the lottery, could you put millions of winnings in the account?
What Determines an Amount in Your Savings Account?
It’s very rare to find a bank that limits the amount you can deposit with them. After all, banks get temporary use of the money in their deposit accounts, and they put it to work in money-making pursuits like lending.
However, while the bank may welcome as much money as you’re willing to put into your bank account, two things may prevent you from getting the most out of your money if you have too much at one bank:
- Some banks have rate tiers that cap the amount of money that can earn their best interest rate.
- Federal Deposit Insurance Corporation (FDIC) insurance limits put a cap on how much of your money is protected at any one bank.
Make More Money on Your Deposits
Though there’s no limit to the amount that you can keep in a savings account, you should carefully consider your options if you have a large amount of money to save.
When you deposit money in a savings account, what you’re really doing is making a loan to the bank. The bank will take your money and pool it with the money deposited by its other customers.
The bank uses that pool of money to make investments and to lend to its other customers. It takes the return from its investing and lending and pays some of it back to you as interest. It then uses the remainder to pay its operating costs.
If you have a large balance to deposit in a savings account, you should look for an account that pays a lot of interest.
Big Banks Pay Little Interest
Large, national banks can be convenient since they have a lot of locations. Where they fall short is in their interest rates. Because the operation of physical branches of a bank is expensive, they pay less interest.
Online banks are much cheaper to run and pay far more interest than banks with physical branches.
Even if the difference in interest rate is small, it can have a huge effect over time.
Read: How Much Cash Can You Deposit Before It Is Reported to the IRS?
Why High-Interest Rates are Important
|After X Years…
||Average Savings APY at Top National Banks: 0.026% APY
||Average Savings APY at Top Online Banks: 2.00% APY
|Total Interest Earned
The longer you can save and the higher the rate you can earn, the more money you’ll have at the end of the day.
Remember to Diversify
It is commendable to build a big savings account. Just remember that it is wise to diversify your money for a balanced approach to grow your wealth, as many financial advisers would recommend.
Buying a bond is like lending money to a government or the business. Bonds come in terms of months or years and can pay much more interest than a savings account.
If you choose a secure bond, like a U.S. government bond you can feel confident that you won’t lose the money you put into the bond. The downside is that you can’t withdraw money from a bond the way you can with a savings account. The tradeoff for a better return is that you have less access to your cash.
Another option for people who won’t need their cash for a while is investing in stocks or mutual funds. While this brings risk, you can earn a lot of money over the long-run.
Adjusted for inflation, the S&P 500, (the 500 largest companies in the U.S.) returned 7% per year between 1950 and 2009.
If you invested that same $100,000 in the S&P 500 for 25 years and earned the 7% returns each of those 25 years, your ending balance would be $542,743.26.
Compound interest is a powerful force, especially when you have a long time to let it work.
Rules for Large Deposits
Though there’s no limit to how much you can keep in a savings account, you should know the rules surrounding large deposits to savings accounts.
When it comes to making deposits to a bank account, $10,000 is the magic number. If you want to make a deposit in the five-figure range, you’ll need to fill out some paperwork for the IRS.
While this might sound scary, it really isn’t, and it’s important that you follow the rules when making large deposits.
The Law on Big Transactions
The reason that banks require you to fill out paperwork for large deposits is the 1970 Bank Secrecy Act. Part of the law is aimed at preventing illegal activities like money laundering or counterfeiting.
The law requires that your bank submit information of any large transactions to the IRS within 15 days of the transaction.
The paperwork that you have to fill out isn’t too daunting. In most cases, you’ll just fill out a deposit slip and provide proof of identity. The bank will take care of the rest.
Never try to avoid depositing $10,000 at once by breaking the amount up into smaller transactions. For example, taking $10,000, depositing $5,000 today, $3,000 tomorrow, and $2,000 the day after.
This is called structuring and is illegal because you are attempting to circumvent the Bank Secrecy Act.
Similar rules apply for withdrawals exceeding $10,000, so don’t be surprised by extra paperwork when you make a large withdrawal.
In the end, don’t worry too much about these rules. At most, you’ll be asked to provide some extra information when making a deposit. Just deposit and withdraw money from your account as you usually do, and you won’t run into issues.
FDIC Insurance Limits Keep Your Money Safe
FDIC insurance is a bank-funded, federally backed insurance program that protects the money that’s on deposit at participating banks against a failure of the bank.
This insurance makes participating deposit accounts the safest place you can keep your money.
Bank failures have been rare in recent years; but in the aftermath of the last financial crisis, over 450 banks closed in just a five-year period.
Without FDIC insurance, customers at those banks would have faced a difficult legal process to try to recoup even a portion of their deposits, probably at pennies on the dollar.
FDIC insurance makes sure that depositors can get their money back in full when insured banks fail, but there is a catch: FDIC insurance is limited to $250,000 per depositor, per financial institution.
Note that this $250,000 limit applies across all your accounts at a given bank. So, if you have a checking account and a savings account at the same bank and the total of these two accounts exceeds $250,000, then that excess amount is not covered by FDIC insurance even if each of the accounts individually is below the limit.
So, while you are allowed to have more than $250,000 in a savings account, exceeding that amount in deposits at any one bank will reduce the amount of FDIC insurance coverage you receive.
You can keep as much money as you want in a savings account, but that doesn’t mean it’s a good idea. Make sure you are aware of the interest you’re earning, insurance limits, and any laws regulating your activity if you have a large bank balance.
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