Wojciech
Diploma for Financial Advisers
Diploma in Accounting
Member of London Institute of Banking and Finance
When thinking about your finances, you might ask yourself: What is too much to have in savings? While saving is essential, keeping too much money in a regular savings account might not be the smartest move. It’s important to find a balance between saving for emergencies and making your money work harder through investments.
How Much of Your Savings Is Protected?
In the UK, the Financial Services Compensation Scheme (FSCS) protects your money if a financial institution fails. This scheme covers up to £85,000 per person, per authorised firm, or £170,000 for joint accounts.
If you’ve recently received a large sum of money, such as from a property sale or inheritance, the FSCS also provides temporary high balance protection of up to £1 million for six months.
However, it’s important to remember that the protection applies per financial institution and their banking licence. If you have accounts with multiple banks under the same licence, the £85,000 limit applies to the total across those accounts.
Why Too Much Savings Can Be a Problem
While it’s reassuring to know your money is protected, having too much in savings can still be a missed opportunity. Savings accounts usually offer low interest rates, meaning your money could lose value due to inflation. Instead of holding excess cash, consider whether some of it could work harder for you.
How Much Should You Keep in Savings?
The general rule is to have an emergency fund of 3-6 months’ living expenses in a savings account. Beyond that, think about your goals:
- Short-term goals (1-3 years): Keep savings accessible for things like holidays or home repairs.
- Long-term goals (3+ years): Explore growth-focused options, such as pensions or stocks and shares ISAs, which are outside the FSCS protection but often deliver better returns over time.
When Do You Have Too Much in Savings?
You might have too much in savings if:
- You exceed the FSCS protection limit (£85,000) without diversifying your accounts.
- You’re holding significantly more than you need for emergencies and short-term goals.
- Your savings are not keeping up with inflation, meaning your money is losing purchasing power.
What Should You Do with Extra Savings?
If you have more savings than necessary, consider these options:
- Open multiple accounts: To stay within the FSCS protection limits.
- Pay off debt: Focus on clearing high-interest debts.
- Invest: Look at options like stocks, shares, or increasing your pension contributions.
- Plan for bigger goals: Such as buying a home or starting a business.
Final Thoughts
Asking What is too much to have in savings? is a step towards smarter money management. While it’s essential to save for emergencies, don’t let your money sit idle. Use FSCS limits as a guideline to protect your wealth and consider investments to grow it further.
If you’re unsure about your savings or investment strategy, financial guidance can help you make confident decisions for your future.
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