How much money should I lock up in my savings account?
Firstly well done on building a really sold base of savings. An emergency fund needs to have two key characteristics: Be enough to get you through a typical emergency event (often seen as approx. ~6 months’ salary in your style of situation assuming you have no dependents etc) Be liquid and available to you instantly if an emergency arises Once you have decided how much you will need for 1), you then generally find the best interest available on an instant access savings account and leave it there. It's important to note that because you need it very liquid and very secure you will basically never make (nor should  you expect to make) any sizeable rate of interest on your emergency fund. Once this is done, whatever left should be invested in an asset/mix of assets that best fit your risk profile - of which long term bonds are a completely legitimate option, but it's hard to say without knowing more about your long term aims/liabilities/job market etc. One issue which I don't see addressed in the answers so far is how to structure bank accounts to get the highest return possible. What you're describing sounds like a certificate of deposit (CD): 'ranging from 1% for 9 months to 2.3% for 5 years' There is a concept which was once more common called a CD Ladder, which still allows you to access your money, while also giving you the highest interest rate offered by the bank.   To set one up you divide your account into 5 equal parts, then open 5 CDs with different periods (1-5 years).  Each time a new CD matures (once a year), you purchase another 5 year CD with those funds, plus any new money you want to save.   Thus you're getting a higher and higher rate, until all of your accounts are earning the 5 year CD rate, and you're never more than a year away from getting money out of the account if a need comes up. No, don't bother.  You need to decide what you are saving for, and how much risk you are prepared to take. It would make sense if you wanted the money only in x years, and couldn't afford to lose say 20% or more if the stock market crashed the day before you needed the cash.  Typically if you are about to retire and buy an annuity, you want to protect your capital.  This isn't you. At 28, you might be saving for a wedding, a deposit on a house, possibly for school fees, or for eventual retirement.  It doesn't sound like you need to get back exactly 24k in July 2022. Keep the 6 months expenses in accounts that you can withdraw from at short notice.  Some of this in a current account, some might be in a savings account that doesn't pay interest if you make withdrawals. After that, I'd stick most of the rest in stock market tracker funds, but you might go for actively managed funds instead (ask another question and take professional advice, there will presumably be local tax considerations too), and add in most of your monthly savings too.  These should beat the 2.3% over the 5 years, and you can liquidate them easily if you want to buy a house. If there is a recession and a stock market dip, you presumably have the flexibility to hold on to them longer for the economy to recover.  And if you are intending to buy a house, then a recession will probably also involve a fall in house prices, so the loss in your savings will be somewhat balanced by the drop in the purchase price of your house. Of course, the worst case scenario is a severe downturn where you lose your job, are unemployed for a considerable period of time, burn through your emergency fund, and need to sell shares at a considerable loss to meet your expenses.   You might have family or dependents that you can borrow from or would need to support, which would change your tolerance for risk.  Having money locked away for 5 years in this scenario is even worse.  So if you don't want to put all your non-emergency savings into the stock market, you still want to choose something that is accessible at a slightly lower interest rate. But ultimately it sounds like you can afford to lose some of your savings, and the probability is that you will be rewarded with much better returns than 2.3% over 5 years. Lets imagine two scenarios: 1) You make 10.4k (40% of total income) yearly contributions to a savings account that earns 1% interest for 10 years. In this scenario, you put in 104k and earned 5.89k in interest, for a total of 109.9k. 2) You make the same 10.4k yearly contribution to an index fund that earns 7% on average for 10 years. In this scenario you put in the same 104k, but earned 49.7k in interest*, for a total of 153.7k. The main advantage is option 1) has more liquidity -- you can get the money out faster. Option 2) requires time to divest any stocks / bonds. So you need enough savings to get you through that divestment period. Imagine another two scenarios where you stop earning income: 1-b) You stop working and have only your 109.9k principal amount in a 1% savings account. If you withdraw 15.6k yearly for your current cost of living, you will run through your savings in 7 years. 2-b) You stop working and have only 20k (2 years of savings) in savings that earns 1% with 153.7k in stocks that earns 7%. If you withdraw your cost of living currently at 15.6k, you will run through your investments in 15 years and your savings in 2 years, for a total of 17 years. The two years of income in savings is extremely generous for how long it starts the divestment process.  In summary, invest your money. It wasn't specified what currency we are talking about, but you can easily find access to an investment company no matter where you are in the world. Keep a small amount for a rainy day. "Edited answer, given that I didn't address the emergency fund aspect originally: None. You've said you don't feel comfortable locking it away where you wouldn't be able to get to it in an emergency. If you don't like locking it away, the answer to ""How much money should I lock up in my savings account?"" is none. On a more personal note, the interest rates on bonds are just awful. Over five years, you can do better."
While it’s your personal choice on HOW you save for later its essential that you save. My sister works in a bank and recommended me not to put any money into retirement plans since the tax-advances seem fine but have to paid back when you take the money out of the accounts (in Switzerland, don't know about the united states). Many reasons exist that you suddenly need the money: Buying a house, needing a new car, health issues or just leaving the country forever (and the government trying to make it as hard as possible for you to get your money back). I recommend putting it on a savings account on a different bank that you normally use, without any cards and so on. In short: It can be dangerous to have money locked away – especially if you could easily have it at your hands and you know you're able to manage it. "Many of my friends turn to me for financial advice, and here's what I always tell them because it's super effective for me... 1) I opened an online bank account with Scottrade for which I did not request a card or checks. I set up direct deposit straight to that account. It would be a complicated pain to take money out of that savings. The only time I did so was to buy my house (which was the purpose of the savings) and it involved a wire-transfer and printing of the form to fill out and faxing it in, etc. I have continued to use the account to save for my second house. I basically completely forget that the account is even there or that I am ""missing"" a large chunk of my money. 2) It is VERY important to actually budget for spending money to continue to spend on impulse items. Basically allow yourself to spend money on yourself but in a controlled way. Decide a specific amount that you want to put in a separate account that is just for you to spend to your hearts content and have it direct deposit. I find, (and Dave Ramsey also encourages this) that when I know how much money I am going to blow, I feel much more in control and it causes me to not get carried away and blow more than I realized. Take this a step further... Decide specifically what you want to buy for yourself, and label the account accordingly. For example, I decided back in March that I wanted to buy an Xbox One for when Star Wars Battlefront comes out this November. I calculated exactly how much money I would need at that time, figured how many paychecks I would receive until then, and did the math to determine exactly how much I need to direct deposit into an account JUST for saving to buy the Xbox and game. I use CapFed, and I can actually rename the account as it is displayed, so I called it ""Xbox fund"". Seeing that title, a reminder of what I really want"" encourages me to not touch it. What is your goal behind wanting to save money better? What are you saving for? Label your account accordingly so you don't just see it as money, but as progress." "Here's my attempt at ""Options for Kids"" ""Hey kid... So you have this video game that you paid $50 for that you want to sell two months from now"" ""Yes, Mr. Video Game Broker, but I want to lock in a price so I know how much to save for a new Tickle Me Elmo for my baby sister."" ""Ok, for $3, I'll sell you a 'Put' option so you can sell the game for $40 in two months."" .... One month later .... ""Hey, Mr. Video Game Broker, I can't wait to get this new Tickle Me Elmo for my little sister for Christmas, but its hard to get and I'm afraid prices will go up. I can only spend $100!"" ""Ok kid, for $4 I'll sell you a 'Call' option to buy a Tickle me Elmo on December 21st for $95. If you can find it cheaper, the option can expire, otherwise $95 is the most you will pay!""" I think JohnFx's answer is pretty much the right thing to do. I'd just like to suggest that the budget doesn't have to be fixed. It sounds like you aren't completely sure what an acceptable lifestyle costs for you, and it might feel like a budget locks you into a spending pattern that could end up being unfulfilling, or keep you in debt longer than necessary. To reduce that risk, you could start with a very easy level of contributions, then every month see if you can spend $10-$50 less without sacrificing in the lifestyle department. And eventually if you feel like you're missing out, you can stick with the previous month's budget. You might avoid depriving yourself by starting with something easy, but I think if you make an effort to save money, you'll more likely be surprised how much you can improve your lifestyle while spending less. I like a lot of the advice on Mr. Money Mustache and Early Retirement Extreme, and I'd recommend the introductory sections of both blogs if you ever hit a block at some level of contribution. And one minor (highly situational) comment: You mentioned having less to save if you contribute more, but if you have high interest loans, paying them down early can be (pretty much) a guaranteed very high ROI. So while you might want to prioritize an emergency fund and maybe an employer match first, most saving will probably be less useful than extra contributions. Don't forget to also build up an emergency fund - retirement saving is important, but you don't want to be caught in a situation where you need money for an emergency (lose your job, get hit by a bus, etc.) and it's all locked away in your 401(k). You have a comparatively small sum to invest, and since you're presumably expecting to go to college.university soon, where you may well need the money, you also have a short timescale for your investment. I don't think anything stock-related would be good for you -- you need a longer timescale for stock market investments, at least five years and preferably ten or more. I don't know the details of Australian savings, but I'd suggest just finding a bank that is giving a good interest rate for a one-year fixed-term savings account. "Many of my friends turn to me for financial advice, and here's what I always tell them because it's super effective for me... 1) I opened an online bank account with Scottrade for which I did not request a card or checks. I set up direct deposit straight to that account. It would be a complicated pain to take money out of that savings. The only time I did so was to buy my house (which was the purpose of the savings) and it involved a wire-transfer and printing of the form to fill out and faxing it in, etc. I have continued to use the account to save for my second house. I basically completely forget that the account is even there or that I am ""missing"" a large chunk of my money. 2) It is VERY important to actually budget for spending money to continue to spend on impulse items. Basically allow yourself to spend money on yourself but in a controlled way. Decide a specific amount that you want to put in a separate account that is just for you to spend to your hearts content and have it direct deposit. I find, (and Dave Ramsey also encourages this) that when I know how much money I am going to blow, I feel much more in control and it causes me to not get carried away and blow more than I realized. Take this a step further... Decide specifically what you want to buy for yourself, and label the account accordingly. For example, I decided back in March that I wanted to buy an Xbox One for when Star Wars Battlefront comes out this November. I calculated exactly how much money I would need at that time, figured how many paychecks I would receive until then, and did the math to determine exactly how much I need to direct deposit into an account JUST for saving to buy the Xbox and game. I use CapFed, and I can actually rename the account as it is displayed, so I called it ""Xbox fund"". Seeing that title, a reminder of what I really want"" encourages me to not touch it. What is your goal behind wanting to save money better? What are you saving for? Label your account accordingly so you don't just see it as money, but as progress." Not OP, but let's see:  My money-market account is showing 0.25% interest rate. My savings account, 0.20%. And checking, 0.22%.  It doesn't matter where I keep my emergency fund and what I keep my checking balance. It's making fuck-all for interest. And I need to keep a couple thousand in there because my mortgage hits for about $1600. And my monthly CC spend averages ~$3500 monthly.   I simply can't keep a couple hundred in there.