3 Things Not to Do When Your Savings Reaches $50,000

If you've managed to save $50,000, congratulations! It takes effort and dedication to put aside that amount of money. Those savings will give you a solid foundation for whatever step you take next, money-wise. That said, it's possible to have too much money in your savings account, even a top high-yield savings account.

When you're thinking about what to do -- or not to do -- a lot depends on what you've been saving for. If you want to put a deposit down on a home or want to buy a car, your next steps are clear. But if you've hit $50,000 and don't have a specific goal, here are three mistakes to avoid.

1. Don't keep too much in savings

Savings accounts are just one of many financial tools at your disposal. The trick is using the right tool for each job. Just as you use your checking account for everyday spending, there's a place for your savings account, CDs, brokerage accounts, and more.

It's important to know how much you need to keep in each account. Many people aim to have three to six months' worth of living expenses -- or more -- in savings. This emergency fund is a cushion against any unexpected events.

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

According to research from The Motley Fool Motley Fool Money, the average American household spends just over $6,000 a month. If your situation is similar, $36,000 would cover six months of costs. That leaves at least $14,000 that could be moved elsewhere and invested for the long term.

2. Don't miss out on investment opportunities

There's a big difference between saving and investing. Savings accounts are relatively low-risk places to keep cash you might need in the short or medium term. Investing carries more risks, but over time it generates higher returns.

You don't need to be a financial genius to invest. If you don't want to research individual stocks, consider starting with an ETF (exchange-traded fund) that tracks the S&P 500. The S&P 500 gives exposure to the largest 500 companies in the U.S. It has generated average annual returns of around 8% over the past 100 years.

If you have money you don't plan on using in the coming five to 10 years, use it to buy assets that will accumulate in value. There will be years when your investments will lose value, which is why we don't always invest everything. But over time, investments beat savings accounts hands down.

3. Don't miss out on tax-advantaged ways to save

When savings rates were low, people barely noticed taxes on savings interest. But if you have $50,000 in a savings account that's paying an APY of 5%, you're looking at around $2,500 in annual interest. You will pay tax on it at the same rate as your other income. So if you're in the 24% tax bracket, $600 would go to the IRS.

Find out what tax breaks you qualify for. Money you put aside for retirement, health costs, and other categories can all qualify for tax deductions.

Retirement

There are a few tax-advantaged ways to save for retirement savings. The first is through work-based plans like 401(k)s. If your company offers one, find out how it works. Not only can you get tax breaks, but your employer might also match some of the money you put in.

If that's not an option, find out which IRA will suit your situation. A traditional IRA can reduce your taxable income on this year's return. With a Roth IRA, you contribute post-tax dollars and can make tax-free withdrawals later in life. The maximum you can contribute to your IRAs in 2024 is $7,000. (Or $8,000 if you are over 50.)

Health

More and more Americans worry about the cost of healthcare, both for now and in the future. If you have a high-deductible health plan, max out your contributions to your health savings account (HSA). For 2024, that's $4,150 for an individual and $8,300 for a family. You can roll over your contributions from one year to the next.

HSAs qualify for a triple tax benefit. Not only can you reduce your tax bill today, but your investments can grow tax-free and then you can make tax-free withdrawals to cover medical expenses.

Another option is a flexible spending account (FSA). These are work-based plans where pre-tax dollars are put into an account for out-of-pocket health costs. The big disadvantage is that you usually have to use the money that year or risk losing it.

Put your money to work for you

Let's finish with a very hypothetical illustration to show you how powerful investing and tax breaks can be.

• You decide to invest the $14,000 extra you have in savings. You put $7,000 into a traditional IRA and $4,150 into an HSA. If you're in the 24% tax bracket, this will reduce your tax bill by $2,676.
• You use your IRA, HSA, and brokerage account to buy ETFs that track the S&P 500.
• You earn average returns of 8% a year and your assets compound in value. In 30 years, your initial $14,000 investment could have grown to over $140,000.

Having a decent amount of money in savings unlocks the next level, financially speaking. You worked hard to save that $50,000 -- now it's time for it to work for you.