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

How Much Money Can You Keep in a Bank Account vs. How Much Should You?

We often hear the adage “don’t put all your eggs in one basket,” and this wisdom applies directly to your finances, specifically how much money you keep in a single bank account. While you can technically deposit millions into a single account, the question of how much you should keep in one place is a different matter entirely, often revolving around the concept of deposit protection.

In the UK, the Financial Services Compensation Scheme (FSCS) protects your deposits up to £85,000 per individual, per authorized institution. This means that if a bank, building society, or credit union fails, your savings are protected up to that limit. This protection offers significant peace of mind, but it also raises the question: what happens if you have more than £85,000 to save?

The key here is diversification. While there’s no practical limit to the amount you can deposit, exceeding the FSCS limit in a single institution exposes you to potential losses in the event of a failure. So, if you have substantial savings, consider spreading them across multiple authorized institutions. This strategy allows you to maximize your protection under the FSCS.

For example, if you have £170,000 to save, you could split it evenly between two different banks, ensuring that each deposit falls under the £85,000 threshold. This way, even if one bank were to fail, your entire savings would still be protected.

However, maximizing FSCS protection isn’t the only factor to consider. Other aspects influence how much money you should keep in a single account:

• Accessibility: Do you need immediate access to all your funds? Consider keeping your everyday spending money in an easily accessible current account, while longer-term savings might be better suited for a savings account or other investment vehicles.
• Interest rates: Different accounts offer varying interest rates. Explore your options to find the best returns for your savings goals. Higher interest often comes with restrictions on access, so balance your need for liquidity with the potential for growth.
• Financial goals: Are you saving for a specific purpose, like a down payment on a house or retirement? Segmenting your savings into dedicated accounts can help you track your progress and stay focused.

In conclusion, while there’s no legal limit on how much money you can keep in a bank account, spreading your savings across multiple institutions is a prudent strategy to maximize FSCS protection. Beyond that, consider your individual needs, accessibility requirements, interest rates, and financial goals to determine the optimal distribution of your funds. Don’t just focus on how much you can deposit; focus on how much you should to achieve your financial objectives securely and efficiently.