Can there ever be too much money in a savings account? You may think you can never have enough money, but there are some things that can limit the maximum amount in a savings account or other deposit accounts.
These limits can affect how well your money is protected and how much interest you will earn on that money. In summary, if you want to get the most out of your savings account, stay within certain limits.
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What Determines the Max Amount in a Savings Account?
It is hard to find a bank that limits the amount you can deposit with them. Banks actually temporarily use the money in their deposit accounts, and it all goes toward 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.
Rate Tiers: How Account Size Affects Interest Rates
The structure of a bank’s rate tiers might limit how much you should keep in a savings account.
You might be wandering what a rate tier is, but it is quite simple. A rate tier is a schedule that assigns different interest rates to accounts depending on how much money is in those accounts. To earn the best interest rate, you might have to keep a certain minimum balance.
Here’s an example of a tiered rate schedule:
| Account Balance | Interest Rate |
| $0 to $10,000 | 0.25% |
| $10,001 to $100,000 | 1.00% |
| Amounts above $100,000 | 0.25% |
Using this account as an example, although there is no defined limit on how much you could deposit, you won’t earn the best interest rate if you exceed $100,000.
You’re probably wondering why banks do this. Well, it is most likely because they are offering some sort of promotional rate to attract new customers.
Regardless, before you sign up for a savings account, you should know what the rate tiers are. This will ensure you get the best interest rate possible when you go to open an account and make your first deposit.
FDIC Insurance Limits Keep Your Money Safe
FDIC Insurance is a bank-supported, governmentally sponsored protection program that secures the cash that is stored at participating banks against a bank failure. This protection makes taking an interest bearing accounts the most secure spot you can keep your cash.
Bank disappointments have been uncommon as of late; yet in the aftermath of the last money related emergency, more than 450 banks shut down in only a five-year time frame. Without FDIC protection, clients at those banks would have to legal processes to attempt to recover even a bit of their deposits, most likely at pennies on the dollar.
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.
Spread Your Money Among Different Banks
As mentioned above, there aren’t usually specified limits on how much money you can put in a savings account, the FDIC insurance maximum can limit how much of that money is protected, and certain rate-tier structures can have different interest bearing amounts.
The best way to make sure all of your money is FDIC insured, and you get the most interest out of your money is to spread your money across multiple banks. This ensures that your total savings will be protected and earning the max amount is possible.
Here are some tips for how to do that:
- Leave room to grow: Aim a little short of the FDIC insurance limit. As you know by now, the maximum coverage limit of a savings account is $250,000, but you should open your account with a little less than that amount. This is because you will earn interest on it, therefore pushing it past the coverage limit. Open accounts slightly below that limit to allow for the account to grow.
- Diversify among types of financial products. If you have enough money that you have begun to feel concerned about exceeding the FDIC insurance limit, then you probably don’t need to have all that money in savings accounts. Consider putting larger amounts of money into long-term CDs to earn the higher interest rates.
- Find the best rates for each product type. If you decide that putting your money into different types of accounts makes sense, the nice thing about spreading those accounts among multiple banks is that different banks may have the best terms for different products.
- Watch out for different bank brands with the same parent institution. Sometimes banks operate different brands under the same parent company. That parent company may be considered as a single institution for FDIC insurance purposes; so even though you think your money is at different banks, effectively it isn’t.
How to Choose Your Next Bank
If rate tiers or FDIC insurance limits prompt you to spread your money around to different financial institutions, here are some tips you can use to choose your next bank:
- Compare rates at your account size. Comparing interest rates is important if you want to find a bank product that will give you the most bang for your buck. Keep in mind of all the bank’s rate tiers so you can compare the rate you will receive.
- Look for consistency. The interest rates you’ll earn from savings accounts and money market accounts are subject to change at any point in time. However, there are some banks that are leaders of offering the best rates, so select those banks when you’re looking for one of the mentioned accounts.
- Avoid teaser rates. It’s highly recommended that you aren’t fooled by promotional rates that only last a short amount of time. This is meant to get to customers to join, and once the bank has enough they will change their rate. You may end up earning less than what more established bank will offer you.
- Watch out for fees. In addition to watching out for fees from savings accounts, it’s also important in checking accounts. Also, when you sign up for a CD, make sure you know what the early withdrawal fee would be, so that you can plan ahead.
Rate Differences Are Magnified in Larger Accounts
Ensuring you have very little cash in an savings account is a pleasant issue to have. It implies you have a good amount of cash available to you. The main question is the place to put that cash.
People assume that all savings account rates from all banks are similar to each other, but that is far from the case. Also, small percent differences between interest rates is very worth noting.
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Bottom Line
Rate tiers and the FDIC insurance cap mean there are situations where there is a maximum amount in savings you can have before you stop earning the best interest rate for you.
If you have enough money to be concerned about those limits, consider putting our money into other bank products like long term CDs! For more posts like this check out our list of Bank Guides!
