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While there’s never a bad time to have money in the bank, these days are especially good. The Federal Reserve has raised its benchmark interest rate 11 times between 2022 and 2023, and while cuts are imminent, they haven’t happened yet. So if you have cash in a high-yield savings account, you’re in a good position and could earn as much as 4-5% on your money.
But what if you have a lot of money saved – say $500,000? That’s certainly an unusual situation. But maybe a beloved relative named you as a beneficiary in their will, or you have a well-paying job and have been saving money for some time.
Either way, if you just leave that $500,000 sitting in a savings account, it’s a missed opportunity for growth – and your money may even be at risk. Here’s what to do if you have $500,000 in a bank savings account.
1. Distribute it across multiple banks
If you have $500,000 in your bank account, your first priority is to make sure it is protected from bank failure.
The FDIC is a government agency created in 1933 to protect Americans from the loss of money caused by bank failures that had become a hallmark of the Great Depression following the stock market crash of 1929. FDIC insurance limits have increased over time, and today standard FDIC insurance covers $250,000 per depositor, per FDIC-insured bank, per category of owner.
What does this mean for you and your $500,000? If you happen to have a co-owner of the account and the savings account where the money is sitting is your only deposit account at that particular bank, all of your money should be protected. Otherwise, you risk losing some of your money should your bank fail.
It is a good idea to take some of your savings to another bank and put them in a savings account. This way you do not risk losing money.
2. Consider diversifying into different accounts
Ultimately, a $500,000 savings account may give you limited room for your money—and for it to grow. I’ll discuss investing below (a worthwhile consideration), but you may want to consider other bank account options as well.
If you know you’ll be spending some of the money soon, a money market account could be a good way to invest some of it. Open an account with an online bank and you’ll enjoy a higher annual interest rate (MMAs pay comparable to high-yield savings accounts) and get access to your cash via debit card or check-writing authority.
Opening CDs could be another excellent option. CDs also pay higher interest thanks to Fed rate hikes, but the difference with a CD is that you have the ability to lock in that higher APY for the duration of your CD’s term. Shorter terms (12 months or less) currently pay the highest APYs, so you could set up a lucrative short-term CD ladder with some of your $500,000.
3. Invest – if you have a long time frame
Half a million dollars is a lot of money to keep in a bank account. If you’re planning a big purchase (like buying a house with cash), it makes sense. But if you’re just saving cash for the distant future (retirement in a few decades?), you’re better off investing at least some of that money.
The stock market has returned an average of 10% annually over the past five decades, meaning you have the opportunity to grow your money significantly over a long period of time. Stock investing is risky—but the risk is mitigated when you diversify and have a long enough time frame to wait out market fluctuations. Research your options for brokerage accounts, both taxable and tax-advantaged, to choose a good account and protect your future.
If you have $500,000 in a savings account, you’re way ahead of the rest of us. Make sure your cash is protected by FDIC insurance and choose other financial accounts that will help you maximize your money.
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