With personal savings rates at all time highs but low interest rates for savings accounts, you might be getting antsy about whether you’re carrying too much cash and losing out on the benefits of putting that money somewhere else. Here’s a look at how much cash you should have on hand, and where you might stash the rest.
Savings are at historical high
While millions of Americans have suffered from job loss, COVID lockdowns have also boosted savings for others, and it’s a trend that will likely continue with the latest round of relief checks. The most recent average personal savings rate surged to 20.5% in January, up from 13.4% the month prior, well above the long-term average of 8.9% since the pandemic began (the saving rate hasn’t been this high since World War II). And a recent Bloomberg survey reports that 34% of Americans plan to save their third cash payment, an increase of 11% compared to the first $1,200 check that Congress delivered in the early days of the pandemic.
There’s a problem, though: With the Fed benchmark interest rates near zero, it’s been difficult to find competitive savings rates, as the national average for savings accounts is still only .09%. While it’s tough to argue against putting more into your savings account—especially in a shaky economy—this might be a good time to focus on your other financial goals, too.
How much to keep in checking and savings
If you have been lucky enough to save money over the past five months, you may be wondering how much savings is too much. The answer is: well, it depends. During periods of uncertainty, you may prefer an extra cushion of savings, particularly if you or your partner’s job are less stable. There are a couple of rules of thumb experts recommend, though.
“With the ongoing economic crisis, effectively managing your cash is more important than ever,” says Corbin Blackwell, a certified financial planner at Betterment. She recommends keeping three to five weeks of living expenses in your checking account, and at least three to six months in savings.
Once you meet these benchmarks, Blackwell recommends steering clear of your savings account. For example, depending on your family’s goals, you may invest more for your retirement, kids’ college education, or a one-time expense like a home downpayment.
Unfortunately, shorter-term options like CDs or short-term bond funds don’t offer rates of return much higher than a savings account, so you might be tempted to invest in stocks. Stocks often have higher rates of return, but they’re much riskier too, with no guarantees that you’ll make money—so you’ll want to know your risk tolerance before considering this option.