Bank Savings Account Returns: Are They Worth It?

Your money will not grow significantly in a bank savings account. Most accounts offer very marginal growth rates, less than 1 percent, which do not compound frequently. Many banks charge a fee to maintain the account, and this fee can wipe out the entirety of a year's earnings. High-interest savings accounts are one option to look for, but depending on the financial markets, these may be hard to find. There are other options to bring you higher returns.

CD Instead of Bank Savings Account

Many banks offer 12-, 36- or 48-month CDs. There are options for high-yield CDs and FDIC-insured CDs. Again, the interest rates here will depend on the financial markets. The amount of money you can make also relies on the amount of money you have to deposit. There are not many CDs you can open with under $2,000, and many high-yield programs require $5,000 or more.

You will not be able to withdraw your money until the term expires. Some banks started offering "no-risk" CDs that allow you to close the line at any time, but these are not common. If you have the money to put away and can afford to leave it there long-term, though, a CD will offer you higher returns than a bank savings account.


Bonds Instead of Bank Savings Account

Treasury bonds, or T-bills, have long been considered the most stable investments in the country. Because the bonds are backed by the Treasury, the risk of default is essentially absent.

The minimum amount required is typically $1,000. Bonds can mature in anywhere in the average range of 10 to 30 years, and you cannot call on a bond to be paid out until the term has expired.

One interesting feature that makes bonds attractive is that they are marketable. If you need to sell your bond at any point for immediate liquidity, you may be able to do so on the secondary market.


401(k) or IRA Instead of Bank Savings Account

If you are putting money into a savings account instead of a 401(k) or IRA, you are throwing away potential earnings. If your company has a 401(k) or IRA matching program, you can quickly double the amount of funds you have in reserve regardless of the interest rate. With the financial meltdown in late 2007 and 2008, many have begun to question the best way to invest retirement funds. The lesson learned is to not assume your retirement funds will continue to grow endlessly, because there is no guarantee. Keep a close eye on how and where they are being invested, and ask questions of your employer.

There are some drawbacks with retirement accounts. The amount of money you place in your retirement savings will be capped at a certain amount. This money will also not be accessible for some time. However, you can always borrow against your retirement account for immediate funds.


When to Stick with a Bank Savings Account

Bank savings accounts make the most sense for people who are looking to set aside funds for a short time, a specific purchase or an emergency. Though a savings account will not grow your funds tremendously, placing money in savings will help you avoid spending it on other items. When you receive a medical bill, get into a car accident or require other emergency funds, your savings account can offer you peace of mind. The lower interest rates will never hurt. Funds in a savings account will grow slowly, but they will grow.


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