Saving money is important and it is a useful habit that every person should prioritise. Whether it is for a rainy day or future goals like going on an international tour, savings empower you to achieve various aspirations. And when it comes to managing your savings, a savings account acts as a valuable tool.
A savings account helps you enjoy instant payment services, automated bill payments, cash backs and rewards, exclusive discounts, and handle daily finances without compromising your long-term savings. It offers convenience and security, and lets you earn interest on your deposits.
However, the question remains: how much money to keep in your savings account? You don’t want to keep too little and risk not having enough for unexpected expenses. At the same time, you don’t want to keep too much and miss out on other investment opportunities with higher returns. So how do you decide? Let’s find out.
- Consider your risk tolerance
If you have a low risk tolerance or need quick access to your funds, it is advisable to keep a larger portion of your savings in a savings account. Make sure to compare savings accounts and their features to choose the right banking partner for keeping a considerable amount of funds securely.
However, if you can take more risks and invest for a longer time, explore stocks, mutual funds, and other investment options for higher returns.
- For short-term goals
For short-term goals like trips, car down payments, or gadgets, keep an adequate amount of money in your savings account. For example, let’s say you are planning a trip to a tropical destination and the estimated cost is Rs 50,000. It would be wise to keep at least that amount or slightly more in your savings account so that you have the necessary funds readily accessible when it’s time to book flight tickets, hotels, and other travel expenses.
- Based on your income and expenses
Evaluate your income and expenses to calculate your monthly saving capacity. Subtract your monthly expenses from your income to determine the amount available for savings. Now open a savings account online, set a realistic savings goal based on this discretionary income, and allocate a portion of it to your savings account.
- For irregular expenses and financial emergencies
Most financial experts recommend having at least three to six months’ worth of living expenses in your savings account for irregular expenses and emergencies. For example, if your monthly expenses amount to Rs 22,000, then you should keep an emergency fund of at least Rs 66,000 to Rs 1,32,000 in your savings bank account. If you have dependents, irregular income, or work in an industry with uncertain job prospects, you may want to save more.
Make sure to keep your emergency funds in a bank that offers high savings account interest rates so that your savings can grow faster. To simplify the process, you can use a savings account calculator online, available on various financial websites. This tool helps you project the growth of your savings based on different interest rates and total savings amounts. With this information, you can choose the right bank for your emergency fund, maximising its earning potential.
Deciding how much money to keep in your savings account requires a thoughtful analysis of your living expenses, income, future goals, risk tolerance, and priorities. Another important factor to remember is that the Deposit Insurance and Credit Guarantee Corporation (DICGC) insures only up to Rs 5 lakh per account holder per bank. And while bank insolvencies, especially those of reputed banks, are uncommon, it’s still prudent to not keep more than Rs 5 lakh in any one bank account.