HOW MUCH MONEY SHOULD YOU KEEP IN SAVINGS ACCOUNT? WHEN SHOULD YOU USE YOUR SAVINGS ACCOUNT FUND?

New Delhi: Managing personal finances efficiently is one of the most crucial aspects to attaining long-term financial security and stability. If you are investing money in a savings account then a common concern is deciding how much money you should keep in the savings account. Here's everything you need to know.

Why do you need savings accounts?

A savings account is a type of bank account where you can deposit money for both regular use and short-term use. It offers liquidity which means you can access your funds when needed. Savings accounts also pay interest on balance. Your savings account can be used to save for planned expenses, build an emergency fund, receive income, make payments, pay bills and manage daily expenses.

Savings accounts play an important role in building financial security as they provide a safe place to keep money while also earning interest. A savings account gives you immediate access to cash for emergencies and helps you develop the financial discipline required to achieve your long-term goals.

How much money should you keep in savings account?

A savings account offers high liquidity, allowing you to withdraw the money instantly during an emergency. Even though it doesn't give high returns, it is ideal for handling medical emergencies, unexpected job loss or an urgent repair.

Financial experts recommend the rule of 50/30/20 as a better budgeting method. According to the rule, 50 percent of your fund should be set aside for your needs which are the expenditures you have to cover to maintain your living standards such as home loan payments, electricity and utility bills, groceries, transportation costs, insurance premiums and other unavoidable expenses. Next, you should set aside 30 percent of your fund for your wants which you spend on products and services like dining out, entertainment subscriptions, shopping, vacations and hobbies. The remaining 20 percent of your income should be directed toward savings and future financial planning.

According to financial experts, you should keep one to two months of your living expenses in your savings account plus a small monetary buffer to handle immediate bills. You should only have a small amount in a savings account because the inflation rate is higher than your bank's interest rate and your money actively loses value and buying power every year it sits there. Also every rupee that remains in a low-interest account loses out on larger, compounding earnings in other places.

While saving regularly is essential, it is equally important to maintain adequate liquid cash for daily expenses. Financial experts often recommend keeping a minimum of one month’s worth of expenses readily available with you. This ensures you can manage routine expenses or unexpected emergencies without disturbing your savings.

When should you use your savings account fund?

You should only use your savings account funds for unplanned emergencies or short-term expenses. You should use the money to cover your expenses during a sudden job loss, medical emergency or urgent repairs.

You should not use your savings account funds for non-essential lifestyle wants or long-term investments. Avoid using the amount for any impulse spending like on parties, shopping or upgrading any materialistic possession. Avoid using the money for long-term financial goals because it provides little protection against inflation.

Financial experts recommend avoiding a high balance in a savings account to prevent it from losing value to inflation. Funds in a savings account don't offer much inflation protection. Barring some small finance banks, the public and private sector banks offer low interest rates on savings accounts. Holding a massive balance in a savings account means a huge portion of your wealth is losing purchasing power every single day. Therefore, it is preferable to avoid having a high savings account balance.

2026-07-13T11:41:23Z