While there’s never a bad time to have money in the bank, it’s particularly great these days. The Federal Reserve raised its benchmark interest rate 11 times between 2022 and 2023, and while cuts are forthcoming, we haven’t seen that happen yet. So if you’ve got cash in a high-yield savings account, you’re sitting pretty and could be earning as much as 4%-5% on your money.
But what if you’ve got a lot of money in savings — say, $500,000? This is an unusual situation to be in, for sure. But maybe a beloved relative made you a beneficiary in their will, or you have a high-paying job and have been saving money for a while.
Either way, just letting that $500,000 sit in a savings account is a missed opportunity for growth — and might even leave your cash at risk. Here’s what you need to do if you have $500,000 in a bank savings account.
1. Spread it between banks
First and foremost, if you find yourself with $500,000 in your bank account, you need to ensure it’s safe from bank failure.
The FDIC is a government agency that was created in 1933 with the goal of protecting Americans from losing money to bank failures, which had become a hallmark of the Great Depression following the stock market crash of 1929. FDIC insurance limits have risen over time, and today, standard FDIC insurance covers $250,000 per depositor, per FDIC-insured bank, per ownership category.
What does this mean for you and your $500,000? Well, if you happen to have an account co-owner, and the savings account that holds the cash is your only deposit account with that particular bank, the entirety of your money should be protected. Otherwise, you could be at risk of losing some cash should your bank go under.
It’s a good idea to take some of your saved cash to another bank and stash it in a deposit account there. That way, you won’t be risking money loss.
2. Consider diversifying to different accounts
Ultimately, keeping $500,000 in savings accounts might mean limiting what you can do with your money — as well as its growth. I’ll discuss investing below (a worthwhile consideration), but you might also want to explore different bank account options.
If you know you’ll be spending some of that money soon, a money market account might be a great place for some of it. Open one with an online bank, and you’ll enjoy a higher APY (MMAs pay comparably to high-yield savings accounts), and you’ll get access to your cash via debit card or check-writing privileges.
Opening CDs could be another excellent option. CDs are also paying higher rates thanks to the Fed’s rate hikes, but the difference with a CD is that you get the chance to lock in that higher APY for the duration of your CD’s term. Shorter terms (12 months or less) are paying the highest APYs right now, so you could set up a lucrative short-term CD ladder with some of your $500,000.
3. Invest it — if you have a long timeline
Half a million dollars is a lot of money to keep in deposit bank accounts. If you plan on making a large purchase (such as buying a house in cash), it makes sense. But if you’re just stockpiling cash for a far-off future (retirement in a few decades?), you’d be better served by investing at least some of that money.
The stock market has returned an average of 10% annually over the last five decades, which means you have the opportunity to grow your money significantly over a long period. Stock investments are risky — but the risk is mitigated if you diversify and have a long enough timeline to wait out market fluctuations. Explore your options for brokerage accounts, both taxable and tax-advantaged, to choose a good one and help secure your future.
If you have $500,000 in a savings account, you’re well and truly head and shoulders above the rest of us. Make sure your cash is protected with FDIC insurance, and pick other financial accounts that can help you maximize your money.
