Is There Such A Thing As Too Much In Your Savings Account?

Savings are crucial. This is an undeniable fact. There is no way to determine what could go wrong at a moment’s notice. As such, having the appropriate savings or emergency fund stored away does wonders to give you a peace of mind, especially during times of financial uncertainty. 

But is there such a thing as too much savings? The question might sound counterproductive at first, however, there are a few good reasons as to why you shouldn’t put all of your money into a savings account.

How much should you have in your savings account?

Before we begin, you should be aware that there is a recommended minimum amount of savings for everyone. This should be roughly six months worth of expenses – which can be used to sustain you if anything should happen to your source of income. 

However, due to the current uncertain economic climate, you may want to save even more, just to be safe. The general idea is that you have enough cash on hand that you can tap into whenever you need it without having to rely on credit cards or a personal loan.

The downsides of a savings account

Having a good amount of savings is a good thing. A savings account is definitely a nice and safe place to keep your money. Unfortunately, you will not see much growth on your cash just by simply leaving it in the account. The unfortunate truth is that a savings account does not offer all that much in terms of interest, even during periods of higher interest rates. 

Here are a few examples of savings account interest rates from several banks:

• RHB: 0.25% p.a.
• Maybank: 0.25% – 0.3% p.a.
• Ambank: 0.25 – 0.4% p.a.
• Alliance: 0.75 – 1% p.a.
• AffinBank: 0.25 – 0.3% p.a.

*Rates as of October 2022

If we compare these interest rates to that of inflation, we begin to see the big issue. Malaysia’s inflation rate is forecasted to be at 3.2% in 2022. This shows an upwards trend in inflation when compared to the 2.48% inflation rate in 2021. This is a problem because if the inflation rate exceeds the interest earned, then the practical value of your savings decreases.

Where to put cash instead

So if you need to grow your wealth, where should you put your cash? The simple answer is to put it into investments that will help you to grow your money. There are many different types of investments out there, so you will have plenty of options to choose from. Here are just a few examples to help you get started:

Fixed deposits

A fixed deposit is a type of bank account that promises the investor a fixed rate of interest. The investor will need to put in a minimum amount of money. Said money cannot be withdrawn or accessed for a fixed period of time. Since interest is only paid at the very end of the investment period, any attempt to withdraw said money will result in the interest being voided.

Admittedly, fixed deposits offer some of the lowest returns in terms of investment. However, it has the benefit of being among the safest investments out there.

At the bare minimum, it offers returns that covers the rate of inflation with a very slim profit! Here are a few examples:
Hong Leong Bank eFixed Deposit: 3.60% p.a. (24 months; min. RM10,000)
CIMB Bank Unfixed Deposit: 2.60% p.a. (24 months)
OCBC Fixed Deposit: 2.60% p.a. (24 months; min. RM1,000)
Maybank Fixed Deposit: 2.60% p.a.
RHB Term Deposit/e-Term Deposit: 2.95% p.a. (RM10,000)

Since the investment term and interest rate are fixed, this makes calculating the amount of interest you earn at the end of the investment period relatively easy and predictable.

Robo advisors

If you are unfamiliar with investment jargon and do not want to spend too much time learning the ropes, a robo advisor might be the investment for you. Robo advisor platforms utilise algorithms in order to automate your investment portfolio, thus saving you time and effort. When signing up for one, you will be asked several questions to gauge your investment risk tolerance and time horizon. With these parameters, the algorithm will automatically invest your money and rebalance your portfolio to maximise your earnings, with respect to market conditions.

If you want to know more, iMoney has a comprehensive guide on how robo advisors work and what are some of the best robo advisors you can invest in. 

Unit trust funds

Unit trust funds are a form of collective investment. It allows for a group of like-minded investors with similar goals to pool their funds to be invested in a portfolio of securities or other assets. This pool is usually managed by a professional fund manager. Unit trusts are great for those who have low capital, as they have relatively low barriers to entry and minimum requirements.

However, do note that investing in unit trusts do come with costs like sales charges, trustee fees, annual fees, etc. They can eat into your earnings in the long run, so remember to keep an eye on your long-term finances.

Why you should save more than you need anyway

That said, there is no safer place for your money than in a savings account. Parking your money in investments may help your wealth grow, but those returns are not guaranteed. You could just as easily lose money from investments – which is something that does not happen with just savings.

As with everything, careful planning is the key. You should not rely solely on investments, just as you should not rely solely on savings.

The truth is, you can never have too much in your savings account – unless your goal is to grow your wealth and net worth. In that case, you are no longer just saving. You’re building personal wealth.