Approximately 95% of Americans have a check or savings account, according to the Federal Deposit Insurance Corporation (FDIC). For many people, a savings account is a great place to stash extra money for a major life event, like a wedding, buying a home, or emergencies.
Savings accounts are generally FDIC insured up to $250,000, which means your money is protected against bank failures. The funds are also still accessible, but separate enough from your checking account that you’re less likely to use them for everyday expenses.
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Still, as useful as savings accounts are, there is a right time to withdraw the funds. If you are thinking about withdrawing money from your savings account, Here’s When You Should Do It — And When You Shouldn’t.
You need extra money to cover something planned
“Typically, the biggest reasons people withdraw their savings are to pay a bill, make a purchase, make home repairs, for vacations or for birthdays and holidays like Christmas,” said Arielle Torres, assistant branch manager at Financial Credit Union Addition.
These are all good reasons to withdraw funds.
Let’s say you’re saving for a down payment and are ready to close on your new home—it’s a good time to cash out your savings. Upcoming trips and major home repairs, preferably planned ones, are also valid reasons.
You can also draw on your savings account to cover debts, especially high-interest ones that are draining your monthly cash flow. If possible, wait until you have an emergency fund. Then, when you have the funds available, withdraw your savings to pay off that debt.
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You are dealing with an emergency
One of the clearest signs that you should withdraw your savings account is in case of unavoidable emergencies, Torres said. Common emergencies include surprise medical bills, a broken down car, necessary home repairs and job layoffs – basically, anything that wasn’t planned for and can’t be covered with your regular income or budget.
Ideally, you’ll have a separate emergency fund for this and won’t need to touch your regular savings account. But if you don’t have it and need the money, your savings account is a good alternative. It’s also by far a better option than having to resort to credit cards or high-interest loans to cover emergency expenses.
Are you ready to invest
You can also withdraw from your savings account if you’re ready to invest, Torres said. How much money you withdraw depends on the investment and your goals. The type of investment account also depends on your situation and when you expect to need access to the money.
If, for example, you know you won’t need the money for at least a year, you can transfer it to a certificate of deposit (CD). This is a separate account that usually comes with a higher interest rate than most savings accounts. The downside is that you won’t be able to access the money from the CD until it matures – that is, its term ends. If you do, you could face a hefty fee.
If you don’t need the money for at least several years or a decade, you can invest your savings in an IRA, brokerage account, or index funds. Investing your money comes with some inherent risks, but you can make significant gains over time. You’ll generally need to leave the money untouched for a long time, but it can grow more quickly than in a savings account.
Inflation is eating away at your funds
According to the FDIC, the average savings account has an annual percentage yield (APY) of just 0.45%. High yield accounts have a much higher yield of up to 6.08%.
According to the Bureau of Labor Statistics, the average inflation rate from April 2023 to April 2024 was 3.4%. If you keep your money in a savings account that yields less than the rate of inflation, you should switch to a higher-yielding account.
There’s also a wrong time to withdraw your savings
While there are several reasons why you should withdraw your savings, there are also some reasons why you shouldn’t.
“Some signs that it is not a good idea to withdraw your savings are to withdraw due to uncertainties arising from the economy or to make an impulse purchase,” said Torres.
You should also avoid withdrawing too frequently or all at once. While you have every right to your own money, some banks and credit unions have daily or monthly withdrawal limits on savings accounts. If you exceed these limits, you may be charged a fee.
Taking out too much or without cause can also make it more difficult to build up your savings or achieve other short- and long-term goals — like buying a house, paying for vacations, or having enough money to cover emergencies.
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This article originally appeared on GOBankingRates. with: I’m a bank teller: 4 reasons why you should withdraw your savings right now
