A Savings Account Is Not an Investment
Your savings account is safe but it’s not growing.
Originally published on Substack
If you’ve been putting money into a savings account and calling it investing, you’re not alone. Most people use those words interchangeably. But they’re not the same thing. And the difference matters more than most people realize.
What a Savings Account Actually Does
A savings account keeps your money safe and accessible. That’s its only job.
The problem is the return. A typical savings account earns somewhere between 0.01% and 5% interest per year depending on the type. High-yield savings accounts can get you to the higher end of that range right nowwhich sounds decent until you factor in inflation.
Inflation runs at roughly 3% per year on average. So if your savings account is earning less than 3%, your money is technically losing purchasing power every single year. It’s growing in number but shrinking in value.
A savings account is not building wealth. It’s preserving it at best.
What an Investment Actually Does
An investment puts your money to work in assets that have the potential to grow over time. Assets such as stocks, ETFs, index funds, and bonds.
The US stock market has historically returned an average of 7 to 10% per year over long periods. That’s definitely not guaranteed since the markets go up and down, but over decades, the trend has been consistently upward.
So Should You Stop Saving?
No. Savings accounts have an important job.
Your emergency fund (typically 3 to 6 months of expenses) belongs in a high-yield savings account. It needs to be safe, liquid, and accessible. That’s exactly what a savings account is for.
But once your emergency fund is in place, every additional dollar you save should be working harder than a savings account can make it work. That’s where investing comes in.
The rule of thumb:
Emergency fund and short-term goals (under 3 years) → high-yield savings account
Everything else → invest it
How to Make the Switch
You don’t need to move everything at once. Start with whatever feels manageable.
Open a free brokerage account at Fidelity, Schwab, or Vanguard. Transfer a small amount. Buy a simple low-cost index fund like VTI. Set up an automatic monthly transfer so you don’t have to think about it again. That’sit.
One More Thing Worth Knowing
If you have a birthday or any celebration coming up, you can set up an investment gift registry on Endowe and let the people who love you contribute directly to your investment account starting at just $10. Instead of cash gifts that sit in a savings account or get spent, every contribution goes straight into your investments and starts growing immediately.
With lots of love,
Your godmother Ada
Disclaimer: As someone in finance as a regulated investment professional, I want to be clear: I’m not your financial adviser, and this post is education, not personalized advice. All investments carry risk including possible loss of principal, and past performance doesn’t guarantee future results. Talk to a professional who knows your full situation before making money moves.
