Why the Savings Account Is No Longer a Good Investment
Deciding where and how to invest your money depends upon many factors. With the economic unrest of recent years, it can be challenging to understand all of the options and risks of investments and many may think that simply putting their money into a simple savings account is the safest strategy.
No doubt, there is less risk in your local bank's savings account than in the stock market, but there is typically no return on your money and would do just as well stuffed into your mattress. Determine first what your financial goals are. Do you have a great deal of risk tolerance? This means you do not panic if the value of your investment fluctuates a bit. If you can deal with the chance your money value might in fact decrease now and again, short-term investments are likely going to offer a better return than a savings account.
Another consideration is how accessible do you need your money to be. With a savings account, you can more often than not remove all of your money at your discretion with little or no penalty. If you are not in need of immediate access to your funds, savings accounts just do not yield the type of return you can earn with an investment. Finally, how long can you do without the money you are putting away? This final consideration will help you to determine exactly where your money will do the most good.
Conventional savings accounts typically do not pay out in the end. This is why it is evaluate your options according to time. Money socked away in a savings account is likely to lose money in the long-term. Over time, the money you put into a savings account actually loses money because inflation is often higher than the interest rate you are earning on the money in your savings account. While inflation is never a steady rate and can fluctuate unpredictably, a logical estimate is 3%. If you are not earning more than 3% on your savings account, it is best to pull the money and put it into another investment.
Again, if you need to have your money accessible, a conventional savings account can be better than other investment options, but only if the interest rate is more than 3%. Online savings accounts such as ING Direct tend to have higher interest rates than local banks, but you will still never yield a big return.
The wisest investment option for those who are looking to invest for a longer period, but without a great deal of threat is the low risk mutual fund. There are many options when investing in a mutual fund and a financial counselor can advise you with the safest options available. For instance, if you are close to retirement age, it is not wise to risk all of your money in a high-risk endeavor even if the yield is quite high. It is true that you can benefit the greatest with the highest risk, but you can also lose it all just as easily.