What is there to spend my rupees on?
I would say that the Pond of Happiness is a good place to spend rupees. You can find the pond inside a cave on an island in the middle of Lake Hylia. You will need to buy Zora Flippers from Zora in Zora's Lake for 500 rupees in order to swim to reach the island.
Depositing 100 rupees allows the player to increase their bombs or arrows carrying capacity by 5 for each 100 rupees deposited. You can do this up to a maximum of 50 bombs and 70 arrows (with the last upgrade for each being an increase of 10).
It looks like you can only throw in either 5 or 20 at a time, unless you have met Venus, in which case, it is 25 or 50.
At first, Link can only throw in 5 or 20 Rupees at a time. After he meets Venus, the amounts increase to 25 and 50 Rupees.
Besides this, there is no way to increase the carrying amount of how many rupees you can hold. It's only 999 for a Link to the Past.
Flippers for 500 Rupees
It sounds as though you don't have this item yet, and it's easily the biggest use of Rupees in the game. If you head to the northeastern most part of the world map, you can find a path leading north to an area full of Zoras. If you go all the way to the end, you can find a giant Zora who will offer to sell you the Flippers for 500 Rupees, allowing you to swim.
However, like most Zelda games, you'll usually end up maxing out your wallet early and often. There's just not that many significant things to spend your money on.
Blue Potions, 160 - 640 Rupees
When you get to the later dungeons, You'll want to stock up on potions, and a lot of them. Both magic and health can run low as the difficulty increase. You can get 4 jars for holding potions. There is a magic shop close to Zora's waterfalls, where you can get three kinds:
- Blue Potion - 160 Rupees
- Green Potion - 60 Rupees
- Red Potion - 120 Rupees
refilling four jars with blue potions will cost you 640 rupees, and at this point in the game, you might use them fast, and not have as many richly filled treasure chests available for plundering.