6 Things You Should Know If You Deposit More Than $100K Into a Savings Account
If you’ve recently had a windfall of cash, there are certain things you should know if you’re hoping to deposit more than $100,000 into your savings account.
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“If you deposit over $100,000 into your savings account, your financial institution will probably have to report that to the IRS,” said David Kemmerer, CEO of CoinLedger. “That doesn’t mean you can’t do it, and it doesn’t mean anything will happen, it just means that large deposits over a certain amount have to be reported because they can cause suspicion for criminal activity.”
With this in mind, you should approach all of your financial steps with caution. Here are more considerations to keep in mind if you are making this large deposit.
Understand FDIC Insurance Limits
“Firstly, understanding FDIC insurance limits is crucial,” said Cynthia Hernandez, managing attorney for Hernandez Family Law & Mediation. “Individual accounts are insured up to $250,000, so if you’re depositing more than $100,000 but less than $250,000, your funds are protected.”
However, she explained that for amounts exceeding this, you should consider spreading your funds across different banks or opting for joint accounts, which separately insure each owner’s shares up to $250,000.
“If your savings goes over this, the extra amount is not covered in case of bank failure,” warned Dayten Rynsburger, chief revenue officer at Niche Capital CO. “It is important to make sure that your accounts are within these limits or spread across different institutions if necessary.”
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Interest Rates
“Savings accounts typically offer lower interest rates compared to other investments,” said Rynsburger.
For large balances, he pointed out that this might result in minimal growth. “Consider higher-yield options like high-interest savings accounts or certificates of deposit for better returns.”
Hernandez agreed.
“You should be aware of the potential impact on your interests. Higher deposits can sometimes negotiate better interest rates, especially in high-yield savings accounts,” she explained. “Always speak to your bank about what options or special rates might be available based on the deposit size.”
Jonathan Feniak, general counsel at LLC Attorney, said banks often change their interest rates and having a large sum in one account could lead to returns less than expected. “It’s essential to keep an eye out for interest rate changes.”
Liquidity vs. Return
“Compare your need for liquidity versus returns,” said Rynsburger. “Savings accounts provide easy access to funds, investing in higher-return assets like stocks or bonds could increase your wealth, depending on your risk tolerance and financial goals.”
Consider Hiring an Expert
“Significant sums in savings accounts may require additional considerations for estate planning or investments,” said Hernandez. “Consulting a certified divorce financial analyst, a role I am certified in, can provide tailored advice to maximize the financial efficiency of large savings balances, ensuring your money works effectively according to your personal financial goals.”
Prioritize Tax Implications
“The interest earned from the large sum could potentially move you into a higher tax bracket, hence planning is crucial,” Feniak highlighted.
Other experts equally urged to consider tax implications.
“First, of course it is important to save — but to what goal?” asked Shane Correia, attorney and deputy director of government relations at Center for Justice Innovation. “A financial advisor told me ‘you don’t need a river as your moat against financial threats.’ That took a while for me to accept because of prior experience being homeless, and a deficit mindset.”
He added, “First, as a lawyer, know that any deposit over $10,000 is being reported to the IRS, and subsequently interest earned will be too. While the Inflation Reduction Act is targeting earners over $400,000 a year — in income, not net worth — you want to have good habits around your tax strategies, and this is a helpful start.”
Optimize for Growth
“Figure out how much 3-6 months of expenses are,” said Correia. “That should honestly be what is in a high-yield savings account you trust.”
He said there are some great ones out there with no fees, refunds on ATM withdrawal fees, Zelle, and high yields. “Beyond that, you should start optimizing for growth.”
He added that Roth IRAs will ensure that any growth you experience isn’t taxed as long as you’re withdrawing after retirement. “Given that a small percentage of folks are on track to be able to sustain any decent quality of life in retirement as a millennial, this seems like a safe place to put up to the maximum annual contribution you’re permitted.”
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