5 Reasons why too much money in bank is bad and what you should do – Financial Radiance (2023)

5 Reasons why too much money in bank is bad and what you should do

This is an important topic for discussion and therefore I decided to dedicate a separate blog for it. According to me, this is one of the biggest mistakes done by a lot of people wherein they just let the money sit idle. We need to strive for a position wherein even when we are sleeping, our money is working hard and making more money for us. But, when we just let it lie idle in the bank account, then we are losing the money very fast to inflation.

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(Video) 5 Reasons why too much money in bank is bad and what you should do

5 Problems with too much money in bank account

This is not just one issue, but there are multiple other issues associated with this. Let’s go through all of them one by one.

Problem No. 1: Negative real rate of return – not beating inflation

I have come across people who just use their savings bank as a check-in account. Every month, salary gets into the account, all expenses are paid from this account and the surplus money just keeps getting adding into the bank account. Over some time, it becomes lakhs of rupees. No other investments, all expenses are paid from this account directly. A big problem! While it may make a person feel good while checking the bank balance, please understand that this is illusionary. If on average, inflation is at 7% pa, this money is just earning about 3.5% p.a. interest, and that too taxable! So, every single day, we lose money to inflation. What you need to buy for Rs 100 today will be available for Rs 107, a year later and your bank would have only Rs 103. Soon, the power of compounding catches up and we end up withdrawing a lot of money from the corpus.

I can certainly understand if the money is parked into the account for a short duration, if you know that you would need the money soon. Even for that there are products like liquid funds and ultra-short bonds which can get higher returns and also with high liquidity and no penalty for early withdrawal. By no means am I suggesting that there should not be any money in a saving bank account? We need to have some money for our regular online automatic payments for various bills and also for an emergency purpose (you never know you could have an emergency on bank holidays when your mutual funds would not be accessible!).

Problem No. 2: The good person inside yourself takes over

There could be situations wherein friends and relatives need the money and they already know that you always have surplus money in your bank account. They approach you and even if you do not want to lend money to them, you are not able to refuse and soon the money goes out of your bank account. With a promise that it will be repaid soon, but it is returned late, or worse, the money is never returned. Then it is an awkward position wherein you would not like to spoil your relationships for money, and then the money is then slowly written off. Many relationships go bad due to just one culprit – MONEY. My advice to people is always to keep money and relationships separate, both are too valuable for us to choose between them.

5 Reasons why too much money in bank is bad and what you should do – Financial Radiance (2)

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Problem No. 3: The proverbial – money is the dirt of our hands ….

I know people who lack self–discipline when money is in their bank accounts. It becomes difficult to control expenses and money gets spent on a lot of wants and not just the needs. Future planning is not done and soon, the situation goes out of control. The bank balance keeps depleting and we start living paycheck to paycheck. It becomes difficult to get past the entire month. There is no other option but to start taking loans to meet the regular expenses. Scaling down of the luxurious life becomes difficult and before we realize, we get into debt trap. Easy to get into it, but difficult (though not impossible) to come out of it. Do read one of my previous blogs, wherein I have mentioned some strategies to come out of it.

Problem No. 4: There is no budgeting, no planning

Since for all our expenses we simply start taking out money from this account, there is no budgeting done and no planning for the future too. We do not track how much money we spend every month for all our various expenses, how much we need to accumulate for our various goals, etc. By the time, this realization sets in, it is already too late, since we did not take the power of compounding to our advantage. Financial freedom becomes a distant dream.

Problem No. 5: Too risky, should not have all eggs in one basket

This problem is a no-brainer. Having the entire amount in one bank account can be risky. We all know about the increasing internet frauds by phishing, vishing etc. What if account details get hacked and the money is swiped away by fraudsters?

What needs to be done?

Now that we have discussed what are the issues of keeping the money in one such big account, let us discuss what we should do?

Pay yourself first!

What most people do:

Income Minus (-) Expenses = Savings

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We keep procrastinating the plan for savings, waiting for the right opportunity when we would have enough money for it. It turns out that there are extra expenses in a month either due to any emergency or due to the luxuries (generally the latter) and the decision for investment shifts to the following month, and then the following …..

Change the mindset. Make some changes to the above equation:

Income Minus (-) Savings = Expenses

Pay yourself first. Prepare a high-level budget. Know your monthly expenses, and the various other quarterly and annual expenses. Keep some contingency over and above this. Plan to develop an emergency fund of six months’ expenses. Once this is done, first, keep aside the money for investment either in a separate account or set up the various investments from your existing account. Utilize the remaining money for your expenses during the entire month. Hopefully, this amount would be equal to your monthly expenses which you calculated. If not, then make a plan on how you would be able to achieve it. Initially, starting with a small percentage of savings, say 5% or 10%, then gradually keep increasing it. You will be surprised how humans are so adaptable to the change, and before you realize it, you get very comfortable with your downgraded lifestyle. I am not suggesting at all that we cut corners and live a stingy life. All I am saying is that if there is a scope of cutting out some wasteful expenditure and if that can get is into a wealth-building track, then that should be the first step. Once we start letting the money generate money, then we can of course start spending that additional money, but why spend the Principal amount itself and then live life paycheck to paycheck! I am only suggesting delayed gratification and nothing else!

Take the Next big Step!

I have made the calculations are a lot easier for you. You may download my FREE Personal Finance Toolkit to get started with your budgeting. It has all the information you would need in one place. I am sure, you would be thankful for it. So, take the first step!

I sincerely hope this blog was useful. There was nothing extraordinary information here and most of it was just common sense. Sometimes, in our daily grinds and in the pressure of meeting targets, we just forget the simple basic rules. Therefore, I just wrote this up to get us on track.

If you would like to read any of my previous blogs or subscribe to my youtube channel, there you may click these links. Please feel free to comment or contact us if you would like to discuss anything specific or get my perspective on the same.

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Is having too much money in the bank bad? ›

As a general rule, it's a good idea to keep enough money in a checking account to cover a few months' worth of bills. But if you keep more than that in a checking account, you might lose out on the opportunity to earn interest (or a return) on your cash. Many checking accounts don't pay interest at all.

What are the problems of having too much money? ›

Having too much money can destroy relationships and lead to loneliness. In other words, too much wealth may lead to unhappiness. Besides that, having too much money can lead to poor health and an early grave. We know that the wealthy can afford to eat good food regularly.

Why is keeping too much money in a savings account not a good idea? ›

In the long run, your cash loses its value and purchasing power. Another red flag that you have too much cash in your savings account is if you exceed the $250,000 limit set by the Federal Deposit Insurance Corporation (FDIC) — obviously not a concern for the average saver.

What is too much money in the bank? ›

Keeping too much of your money in savings could mean missing out on the chance to earn higher returns elsewhere. It's also important to keep FDIC limits in mind. Anything over $250,000 in savings may not be protected in the rare event that your bank fails.

How much money can you safely keep in a bank account? ›

There is no maximum limit, but your checking account balance is only FDIC insured up to $250,000. However, as we'll cover shortly, it makes sense to put extra cash somewhere it will earn interest.

What should I do if I have too much money? ›

What to do with extra cash
  1. Pay off debt. If you have a significant amount of debt, consider putting your extra money toward paying that down or off. ...
  2. Boost your emergency fund. ...
  3. Increase your investment contributions. ...
  4. Invest in yourself. ...
  5. Consider the timing. ...
  6. Go ahead and treat yourself.

What do you do when you make too much money? ›

10 Smart Things to Do With Extra Income and Spare Money
  1. Pay Down Debt. ...
  2. Invest in Yourself. ...
  3. Invest in the Stock Market. ...
  4. Open a High-Interest Savings Account. ...
  5. Start an Emergency Fund. ...
  6. Buy a Home Instead of Renting. ...
  7. Invest in Rental Properties. ...
  8. Start a Business.

Why you shouldn't save all your money? ›

Saving money literally limits your financial literacy and how much you can learn. Saving money and just stashing it away instead of putting it into work, you limit yourself in knowing how to cash flow money and double your money or having your money work to create more money.

Why you shouldn't keep all your money in the bank? ›

The real danger of keeping money in a bank is that it's not a safe place. Banks are not insured against losses and can fail at any time. In fact, there's a high likelihood that your bank will go out of business before you do.

What happens if you have more than 250 000 in bank? ›

The bottom line. Any individual or entity that has more than $250,000 in deposits at an FDIC-insured bank should see to it that all monies are federally insured.

How much cash can you deposit in the bank without being questioned? ›

A cash deposit of more than $10,000 into your bank account requires special handling. The IRS requires banks and businesses to file Form 8300, the Currency Transaction Report, if they receive cash payments over $10,000.

Is it safe to keep a lot of money in checking account? ›

Unless your bank requires a minimum balance, you don't need to worry about certain thresholds. On the other hand, if you are prone to overdraft fees, then add a little cushion for yourself. Even with a cushion, Cole recommends keeping no more than two months of living expenses in your checking account.

How much money can I deposit in the bank without being reported? ›

Banks must report cash deposits totaling $10,000 or more

When banks receive cash deposits of more than $10,000, they're required to report it by electronically filing a Currency Transaction Report (CTR). This federal requirement is outlined in the Bank Secrecy Act (BSA).

Does too much money make you unhappy? ›

Most people think that the richer they are, the happier they become. However, evidence shows that this isn't necessarily the case. In fact, recent studies have shown that the more money you have, the more likely you are to suffer from depression and other mental health problems.

Is it possible to have too much money? ›

Being in 'too much excess cash' has a cost called opportunity cost. You may be wealthy today sitting on a lot of cash, but as your cash balances remain level, they are not outpacing inflation and actually losing value.

Is it possible to make too much money? ›

The short answer is, very easily. We all know the old chestnut that money doesn't bring happiness, but worse than that, an overpriced salary can actually make your life much harder if you're unhappy.

Is it better to save cash or bank? ›

It's a good idea to keep a small sum of cash at home in case of an emergency. However, the bulk of your savings is better off in a savings account because of the deposit protections and interest-earning opportunities that financial institutions offer.

Why you should save all your money? ›

The importance of saving money is simple: It allows you to enjoy greater security in your life. If you have cash set aside for emergencies, you have a fallback should something unexpected happen. And, if you have savings set aside for discretionary expenses, you may be able to take risks or try new things.

How much cash can I keep at home? ›

How much cash can you keep at home? According to the rules of the Income Tax Department, you can keep any amount in your house, but if it is caught by the investigating agency, then you will have to tell its source.

How much money should you keep in your checking? ›

The general rule of thumb is to try to have one or two months' of living expenses in it at all times. Some experts recommend adding 30 percent to this number as an extra cushion. To determine your exact living expenses, track your spending over several months, including all bills and discretionary spending.

What is the safest way to keep money? ›

Here are some low-risk options.
  • Checking accounts. If you put your savings in a checking account, you'll be able to get to it easily. ...
  • Savings accounts. ...
  • Money market accounts. ...
  • Certificates of deposit. ...
  • Fixed rate annuities. ...
  • Series I and EE Savings bonds. ...
  • Treasury securities. ...
  • Municipal bonds.
Nov 30, 2022

How much money should I keep in my savings account? ›

Stampf recommends keeping six to 12 months' worth of expenses in a high-yield savings account for easy access to cash in case of an emergency and saving for larger expenses that are are coming in the short term, like buying a home.

What are the disadvantages of value of money? ›

The Value of Money Can Be Inflated Away

Over time, the price of goods tends to increase. A dollar next year won't purchase as much as a dollar today. This process is known as inflation. If value is stored as money, then the value can decrease over time, writes Forbes.

Can there be any disadvantages in keeping money in a bank? ›

1. There will be loss of money if the bank is looted by the thieves. 2. It becomes difficult for the illiterate person to open a bank account and assure himself of the level of security for keeping money in the bank.

What should I do if I got 10000 in the bank? ›

Using $10,000 in savings to invest or pay down debt is a financially savvy decision. A few of the best investment options include increasing your 401(k) contribution and opening an IRA or 529. Using your savings to make additional payments on your mortgage may make financial sense.

Is it bad to have more than 10000 in the bank? ›

The Takeaway

You don't have anything to worry about if you deposit more than $10,000 in cash, assuming you are doing nothing wrong. A large deposit is simply reported by a bank to regulators to track possible suspicious activity.

Is it good to keep a lot of money in the bank? ›

It's important to keep money in a savings account for emergencies. Once your emergency fund is complete, investing your extra cash is a smart move.

Is it okay to keep a lot of money in a checking account? ›

Unless your bank requires a minimum balance, you don't need to worry about certain thresholds. On the other hand, if you are prone to overdraft fees, then add a little cushion for yourself. Even with a cushion, Cole recommends keeping no more than two months of living expenses in your checking account.

Should I keep alot of money in bank? ›

Most financial experts end up suggesting you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000. Personal finance guru Suze Orman advises an eight-month emergency fund because that's about how long it takes the average person to find a job.

Can I deposit $50000 cash in bank? ›

Key points. If you plan to deposit a large amount of cash, it may need to be reported to the government. Banks must report cash deposits totaling more than $10,000. Business owners are also responsible for reporting large cash payments of more than $10,000 to the IRS.

How much money can you deposit in a bank without getting reported in a month? ›

It states that banks must report any deposits (and withdrawals, for that matter) that they receive over $10,000 to the Internal Revenue Service. For this, they'll fill out IRS Form 8300. This begins the process of Currency Transaction Reporting (CTR).

How much cash deposit is suspicious? ›

The $10,000 Rule

Ever wondered how much cash deposit is suspicious? The Rule, as created by the Bank Secrecy Act, declares that any individual or business receiving more than $10 000 in a single or multiple cash transactions is legally obligated to report this to the Internal Revenue Service (IRS).

Is it better to keep money in cash or bank? ›

It's a good idea to keep a small sum of cash at home in case of an emergency. However, the bulk of your savings is better off in a savings account because of the deposit protections and interest-earning opportunities that financial institutions offer.

Where is the safest place to keep your money? ›

Key Takeaways
  • Savings accounts are a safe place to keep your money because all deposits made by consumers are guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts.
  • Deposit insurance for savings accounts covers $250,000 per depositor, per institution, and per account ownership category.

Where is the safest place to keep cash at home? ›

Where to safely keep cash at home. Just like any other piece of paper, cash can get lost, wet or burned. Consider buying a fireproof and waterproof safe for your home. It's also useful for storing other valuables in your home such as jewelry and important personal documents.

How much cash can be kept at home? ›

How much cash can you keep at home? According to the rules of the Income Tax Department, you can keep any amount in your house, but if it is caught by the investigating agency, then you will have to tell its source.


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