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Saving and investing are both important concepts for building a sound financial foundation, but they&#x;re not the same thing. While both can help you achieve a more comfortable financial future, consumers need to know the differences and when it&#x;s best to save compared to when it&#x;s best to invest.

The biggest difference between saving and investing is the level of risk taken. Saving typically results in you earning a lower return but with virtually no risk. In contrast, investing allows you the opportunity to earn a higher return, but you take on the risk of loss in order to do so.

Here are the key differences between the two &#x; and why you need both of these strategies to help build long-term wealth.

How are saving and investing similar?

Saving and investing have many different features, but they do share one common goal: they&#x;re both strategies that help you accumulate money.

First and foremost, both involve putting money away for future reasons, says Chris Hogan, financial expert and author of Retire Inspired.

Both use specialized accounts with a financial institution to accumulate money. For savers, that means opening an account at a bank, such as Citibank, or credit union. For investors, that means opening an account with an independent broker, though now many banks have a brokerage arm, too. Popular online investment brokers include Charles Schwab, Fidelity and TD Ameritrade.

Savers and investors both also realize the importance of having money saved. Investors should have sufficient funds in a bank account to cover emergency expenses and other unexpected costs before they tie up a large chunk of change in long-term investments.

As Hogan explains, investing is money that you&#x;re planning to leave alone to allow it to grow for your dreams and your future.

How are saving and investing different?

When you use the words saving and investing, people &#x; really some percent of people &#x; think it&#x;s exactly the same thing, says Dan Keady, CFP, and chief financial planning strategist at TIAA, a financial services organization.

While the two efforts share a few similarities, saving and investing are different in most respects. And that begins with the type of assets in each account.

When you think of saving, think of bank products such as savings accounts, money markets and CDs &#x; or certificates of deposit. And when you think of investing, think of stocks, ETFs, bonds and mutual funds, Keady says.

The table below summarizes some of the key differences between saving and investing:

The pros and cons of saving

There are plenty of reasons you should save your hard-earned money. For one, it&#x;s usually your safest bet, and it&#x;s the best way to avoid losing any cash along the way. It&#x;s also easy to do, and you can access the funds quickly when you need them.

All in all, saving comes with these benefits:

• Savings accounts tell you upfront how much interest you&#x;ll earn on your balance.
• The Federal Deposit Insurance Corporation guarantees bank accounts up to $, so while the returns are lower, you&#x;re not going to lose any money when using a savings account.
• Bank products are generally very liquid, meaning you can get your money as soon as you need it, though you may incur a penalty if you want to access a CD before its maturity date.
• There are minimal fees. Maintenance fees or Regulation D violation fees (when more than six transactions are made out of a savings account in a month) are the only way a savings account at an FDIC-insured bank can lose value.
• Saving is generally straightforward and easy to do. There usually isn&#x;t any upfront cost or learning curve.

Despite its perks, saving does have some drawbacks, including:

• Returns are low, meaning you could earn more by investing (but there&#x;s no guarantee you will.)
• Because returns are low, you may lose purchasing power over time, as inflation eats away at your money.

The pros and cons of investing

Saving is definitely safer than investing, though it will likely not result in the most wealth accumulated over the long run.

Here are just a few of the benefits that investing your cash comes with:

• Investing products such as stocks can have much higher returns than savings accounts and CDs. Over time, the Standard & Poor&#x;s stock index (S&P ), has returned about 10 percent annually, though the return can fluctuate greatly in any given year.
• Investing products are generally very liquid. Stocks, bonds and ETFs can easily be converted into cash on almost any weekday.
• If you own a broadly diversified collection of stocks, then you&#x;re likely to easily beat inflation over long periods of time and increase your purchasing power. Currently, the target inflation rate that the Federal Reserve uses is 2 percent, but it&#x;s been much higher over the past year. If your return is below the inflation rate, you&#x;re losing purchasing power over time.

While there&#x;s the potential for higher returns, investing has quite a few drawbacks, including:

• Returns are not guaranteed, and there&#x;s a good chance you will lose money at least in the short term as the value of your assets fluctuates.
• Depending on when you sell and the health of the overall economy, you may not get back what you initially invested.
• You&#x;ll want to let your money stay in an investment account for at least five years, so that you can hopefully ride out any short-term downdrafts. In general, you&#x;ll want to hold your investments as long as possible &#x; and that means not accessing them.
• Because investing can be complex, you&#x;ll probably need some expert help doing it &#x; unless you have the time and skillset to teach yourself how.
• Fees can be higher in brokerage accounts. You may have to pay to trade a stock or fund, though many brokers offer free trades these days. And you may need to pay an expert to manage your money.

So which is better &#x; saving or investing?

Neither saving or investing is better in all circumstances, and the right choice really depends on your current financial position.

When to save money

• If you&#x;ll need the money in the next few years, a high-yield savings account or money-market fund will likely be best for you.
• If you haven&#x;t built up an emergency fund yet, you&#x;ll want to do that before you dive into investing. Most experts suggest having three to six months worth of expenses set aside in an emergency fund.
• If you&#x;re carrying high-interest debt such as a credit card balance, it&#x;s best to work toward paying it down before investing. Paying off a loan with an annual interest rate in the high-teens will likely give you a better return than you can earn investing.

When to invest money

• If you don&#x;t need the money for at least five years and you&#x;re comfortable taking some risk, investing the funds will likely yield higher returns than saving.
• If you&#x;re eligible for an employer-match in your retirement account such as a (k). Contributing enough money to ensure you receive the match is key, because the match is like free money.

If you have built up your emergency fund and don&#x;t carry any high-interest debt, investing your extra money can help you grow your wealth over time. Investing is crucial if you&#x;re going to achieve long-term goals like retirement.

Real-life examples are the best way to illustrate this, Keady says. For example, paying your child&#x;s college tuition in a few months should be in savings &#x; a savings account, money market account or a short-term CD (or a CD that&#x;s about to mature when it&#x;s needed).

Otherwise people will think, &#x;Well, you know, I have a year and I&#x;m buying a house or something, maybe I should invest in the stock market,&#x; Keady says. That&#x;s really gambling at that point, as opposed to saving.

And it&#x;s the same for an emergency fund, which should never be invested but rather kept in savings.

So if you have an illness, a job loss or whatever, you don&#x;t have to resort back to debt, Hogan says. You&#x;ve got money you&#x;ve intentionally set aside to be a cushion between you and life.

And when is investing better?

Investing is better for longer-term money &#x; money you are trying to grow more aggressively. Depending on your level of risk tolerance, investing in the stock market, exchange-traded funds or mutual funds may be an option for someone looking to invest.

When you are able to keep your money in investments longer, you give yourself more time to ride out the inevitable ups and downs of the financial markets. So, investing is an excellent choice when you have a long time horizon (ideally many years) and won&#x;t need to access the money anytime soon.

So if someone&#x;s beginning with investing, I would encourage them to really look at growth-stock mutual funds as a great starter way to get your foot in, Hogan says. And really start to understand what&#x;s going on and how money can grow.

While investing can be complex, there are easy ways to get started. The first step in which situation would a savings account be the best investment to earn interest? learning more about investing and why it could be the right step for your financial future.

Learn more:

When you need a place to keep your money that you&#;ll use to pay bills or cover expenses, a checking account is an obvious choice. But when you want to set money aside for future needs and goals, a savings account can be the better option.

Savings accounts allow you to deposit money for safekeeping while also earning interest on your balance. You can open a savings account at an FDIC-insured traditional bank or an NCUA-insured credit union, or with an FDIC-insured online bank. If you&#;re interested in opening a savings account, there are a few important things to know about how they work.

What Is a Savings Account?

A savings account is a deposit account that&#;s designed to hold money you don&#;t need or plan to spend right away. This is different from a checking account, which may allow you to write checks or make purchases and ATM withdrawals using a debit card.

Savings accounts help you stash money away for specific purposes and goals. In which situation would a savings account be the best investment to earn interest? example, you may open a savings account to hold your emergency fund, or you could set up a down payment savings account ahead of buying a home.

While savings accounts can offer convenient access to your money, there are limits to how often you can tap into one. Until very recently, Federal Reserve Board Regulation D has limited you to six withdrawal transactions per month, including:

• Overdraft transfers to a checking account
• Electronic funds transfers (EFTs)
• Automated clearing house (ACH) transfers
• Transfers made by phone, fax, computer or mobile device
• Wire transfers made by phone, fax, computer or mobile device
• Check or debit card transactions

In Aprilthe Fed issued a final interim rule, giving financial institutions the option of lifting the six-per-month withdrawal restriction. However, if you go over the six transaction limit, your bank still can charge an excess how to invest in fidelity etfs fee. The good news is that some transactions, such as transfers made via ATM or a branch, don&#;t count against this limit.

How Do Savings Accounts Work?

Savings accounts aren&#;t overly complicated. You open a savings account at a bank or credit union and deposit money into the account. The bank then pays you interest on your balance.

You can continue adding money to savings, usually through one or more of these methods, depending on the bank:

• Cash or check deposits at the ATM
• Cash or check deposits at a branch
• ACH transfers from a linked bank account
• Wire transfers from another bank account
• Mobile check deposit
• Direct deposit

The interest rate you earn, and the corresponding annual percentage yield, or APY, can vary from bank to bank and from account to account. The APY is the rate of interest earned on your savings when compounding interest is factored in.

So, assume you open a savings account with $1, You deposit $ a month into your account and the bank pays an APY of %. After one year, in which situation would a savings account be the best investment to earn interest?, your balance would be $3, $3, of which are your deposits and $ of which is interest, in which situation would a savings account be the best investment to earn interest?. The higher your APY, the more you deposit and the longer you save, the more your money can grow over time.

Benefits of Opening a Savings Account

There are several good reasons to keep money in a savings account, starting with being able to earn interest. As the previous calculation shows, savings accounts allow you to increase your money without your having to do anything extra. Although this isn&#;t sm investments corporation stock code money—you still have to pay taxes on interest earnings—it is money you can earn passively just by saving regularly.

Savings accounts also offer more liquidity and convenience than other ways to save. A certificate of deposit or CD, for example, is another option for saving for short- and long-term goals. And, compared to some savings accounts, it&#;s possible to earn a better APY with a CD account.

But there&#;s a catch: CD accounts are time deposits, meaning that when you open one, you&#;re agreeing to leave your money in the CD for a set time period. While your money is in the CD, it earns interest, but you generally can&#;t access it without triggering a penalty before it matures. A savings account, on the other hand, would allow you up to six withdrawals per month without a penalty.

Savings accounts also are a safe way to set aside money for the future, in which situation would a savings account be the best investment to earn interest?. While investing money is another way to help it grow, putting money into stocks or mutual funds can carry risk. Savings accounts, on the other hand, can offer a consistent rate of return without putting you at risk of losing money.

And, unlike investments, savings accounts can be FDIC or NCUA insured. This FDIC (or NCUA) insurance means that, even if your bank fails, your savings are protected up to certain limits ($, per depositor, per account ownership category).

Types of Savings Accounts

There are different types of savings accounts you can open, in which situation would a savings account be the best investment to earn interest?, depending on where you decide to bank and what your needs are. Here&#;s a brief look at how they compare.

Standard/Traditional Savings Accounts

Standard savings accounts are the most commonly offered savings option. You can find these at brick-and-mortar banks and credit unions.

With this type of account, you&#;re typically earning a lower APY. (The weekly national average savings interest rate, as reported by the FDIC, has been % APY since late August ) You also may be subject to a monthly maintenance fee or minimum balance fee. These accounts are designed to be a basic savings option.

High-Yield Savings Accounts

High-yield savings accounts are just what they sound like—savings accounts that offer an above-average APY. You&#;re more likely to find high-yield savings accounts at online banks, although traditional banks and credit unions also can offer them. In addition to offering higher yields, due to their lower overhead, online banks also may charge fewer fees for high-yield savings accounts.

Money Market Accounts

Money market accounts combine features of a savings account with features of a checking account. This means you can earn interest on your balance, and you also can write checks or make withdrawals and purchases using a debit card.

Money market accounts may offer better rates than standard savings accounts, although they are still subject to the six withdrawals per month rule. You might choose a money market account if you want to have even more convenient access to your savings.

Kids&#; and Student Savings Accounts

Kids and students also can get in on the savings action with special children&#;s savings accounts designed just for them. These accounts usually have an age cutoff for saving; with student accounts, for example, you may not be able to open one if you&#;re 25 or older.

These accounts are designed to help children, teens and students learn how to get into a savings habit, can pay interest and may or may not charge fees. You&#;re more likely to find these accounts at traditional banks, versus online banks.

Specialized Savings Accounts

Some banks offer special savings accounts that are designed for just one purpose. So, for example, you might be able to open a savings account just for Christmas savings or to save money for a down payment on a home.

These accounts aren&#;t as common as other savings options and they can sometimes come with restrictions. For instance, with a Christmas savings account, you may only be able to make a withdrawal once a year in November ahead of the holiday shopping season. A down payment account may offer a matching savings bonus, but only if you get your mortgage from the bank you opened the account with.

How To Open a Savings Account

A savings account can be helpful for saving money toward various financial goals, and it pays to do your research when opening one. Otherwise, you could end up with a savings account mismatch.

When you&#;re ready to open a savings account, first think about which type of account may be most helpful. For example, either a standard or high-yield savings account could be the right choice for an emergency fund. But, if you&#;re saving money to pay cash for a car, you might want to choose a money market account instead that would let you write a check for the purchase.

Also, consider how much money you have to save. Some banks may require you to have a few hundred or even a few thousand dollars to open a savings account. An online bank, on the other hand, may allow you to start saving with as little as $1.

Next, consider the in which situation would a savings account be the best investment to earn interest? and the APY you can earn with a savings account. Ideally, you should choose an account that has the highest APY with the lowest fees. The more fees you pay, the less of your interest earnings you get to keep. Also, check to see if the APY you can earn applies to all balances. Some banks have interest tiers based on your balance, meaning you have to save more money to get the highest APY.

Finally, think about whether you&#;d prefer to save money with an online bank versus a brick-and-mortar bank or credit union, as well as the different options you have for dipping into your savings when necessary. Online and mobile banking can make your money accessible, but you also may be interested in ATM access or being able to visit a branch. Looking at all the options can help you narrow down which savings account is right for you.

If you’re doing okay financially and have paid off all your high-interest debts, it might be time to start growing your hard-earned cash. Opening a savings account is a simple and effective way to do that.

Generally, you could earn a much higher rate of return from investing in stocks or property, but investing also comes with risk. Your investments could decrease in value, making those funds difficult to access in the short term. Plus, some investments have high minimums, meaning you might need thousands of dollars to start.

While investing your money in the market certainly has a place in which situation would a savings account be the best investment to earn interest? your financial strategy, there are situations in which a savings account could be the best investment to earn interest — whether you’re putting money aside for a rainy day or planning for future spending.

But how much should you save? Financial services company Fidelity suggests keeping at least enough to cover three to six months of necessary expenses, but some experts recommend more than that to achieve true financial security. Personal finance guru Suze Orman recommends saving enough to cover eight to twelve months of expenses.

Of course, in which situation would a savings account be the best investment to earn interest?, that’s just for emergency costs — if you’re planning for a vacation, wedding, or other special expense, you’ll want to put aside extra, in which situation would a savings account be the best investment to earn interest?. But don’t let the amount deter you from saving what you can, even if it will take a while to reach your goals.

5 times a savings account could be the best investment

A savings account gives you the opportunity to easily access your money, though there will probably be a limit to how many times per month you can do so. And most importantly, you can earn interest and keep your money protected. A high-yield savings account could earn you up to % per year, according to current offers.

Here are some situations where it might be a good idea to open a savings account:

1. You need a place for your emergency fund

It’s easy to open a savings account, even with a small amount of money, which makes it a great option if you’re just getting started.

An emergency fund should be stashed somewhere where you can access money quickly when you need it. A savings account is ideal, since it is both liquid and easy to withdraw from. Many of the best banks will even let you make a transfer online.

When you open your account, choose a bank with FDIC (Federal Deposit Insurance Corporation) insurance or a credit union with NCUA (National Credit Union Administration) insurance to keep your money protected.

2. You’re saving for a house in the near future

If you plan to become a first-time homebuyer in the next few years, you’ll want an easy and convenient way to save.

Because saving up for a down payment is no small task, consider a high-yield savings account — especially if you’ve got a chunk of change already. The higher the interest rate you earn on your savings account, the quicker your money will grow.

Online savings accounts often earn more interest, so be sure to do your research and choose an account that’s right for you.

3. You have smaller short-term spending goals

Whether you’re saving for a wedding, vacation, new refrigerator, home repairs, or even holiday gifts, everyone has financial targets they hope to reach soon.

If you’re planning for a large expense that will cost more than your monthly expendable income, a savings account is a great way to accomplish your aim. You can earn interest while you wait and access your money as soon as you’re ready to spend.

4. You plan to retire in the next five years or are already making maximum contributions

If you want to retire comfortably and you’re already contributing the most you can to your retirement accounts, it could be a good idea to invest any additional money into a savings account.

If you’re intending to retire early, you’ll want to keep some money in a savings account to avoid withdrawal penalties from your retirement accounts. Or, if you’re retiring soon, it’s a good idea to keep some cash conveniently accessible to you.

5. You’ll have expenses like taxes or premiums this year

Even if you’ll need to withdraw a chunk of money to pay taxes or pricey insurance premiums, it’s worth keeping that cash in a savings account so you can earn interest until that time approaches.

What to look for in a savings account

The best savings account for you will depend on how much you’re depositing and when you’ll need to access your savings. Here are some things to consider:

• High APY (Annual Percentage Yield). If you’ve decided to open a savings account, you’ll want to make sure you get the best possible return each year. Some high-yield savings accounts require you to keep a minimum balance, while others have no such rule. Often, you’ll get a higher yield with an online savings account.
• Ease of access. If you’re only going to access your money periodically and don’t care about the convenience of using an ATM or physical location, this might not matter much to you. But if you’d like the option to quickly access your cash, look for an account with plenty of options for access and transfers.
• Low or no in which situation would a savings account be the best investment to earn interest?. Make sure you understand all the fees associated with an account, including withdrawal and minimum balance fees. There are plenty of fee-free accounts out there, so you shouldn’t need to pay anything to a bank for opening your savings account.

Putting money into a savings account can help you gain financial security, accomplish your goals, and enjoy a more comfortable future. It’s a great way to start growing your money without taking on much risk, and that cash will be available to you when you need it. And if you manage to go in which situation would a savings account be the best investment to earn interest? life without facing any costly emergencies, we’re sure you’ll still put your savings to good use.

Author Details

Lindsay Frankel Lindsay Frankel is a Denver-based freelance writer who specializes in credit cards, travel, budgeting/saving, and shopping. She has been featured in several finance publications, including LendingTree. When she's not writing, you can find her enjoying the great outdoors, playing music, or cuddling with her rescue pup.

More posts from Lindsay Frankel >

What Is a High-Yield Savings Account?

A high-yield savings account is a type of savings account that typically pays 20 to 25 times the national average of a standard savings account. Traditionally, people have held a savings account at the same bank where they hold their checking account, making transfers between the two easy and quick. But with the advent of internet-only banks, as well as traditional banks that have opened their doors to customers across the country using online account opening, the competition on savings rates has runescape money making guide 2022 skilling, creating a new category of "high-yield savings accounts."

Given the difference between high-yield savings account rates and the national average, the increase in earnings is significant. If you're holding $5, in savings, for instance, and the national average is percent APY, you would return just $5 over the course of a year. If you instead put that same $5, in an account earning 2 percent, you'd earn $

The trade-off to earning significantly more is that you may need to hold your savings account at one institution and your checking account at another. While this may initially feel awkward if you're used to both accounts being held at one bank, today's availability of electronic transfers between institutions—and the speed at which those transfers can be executed—make moving money between your checking account at Bank A and your savings account at Bank B a relatively simple matter.

You may also find that, unlike traditional brick-and-mortar institutions that offer a one-stop shop for all your banking needs, the institutions offering high-yield savings accounts typically limit their features or offer few or no other products. Many don't offer checking accounts and few provide ATM cards, requiring all inflows and outflows to the savings account to occur by electronic bank transfer or mobile check deposit if it's available.

But rest assured that one important feature is the same between traditional savings accounts and their high-yield counterparts: the federal insurance you're provided against bank in which situation would a savings account be the best investment to earn interest? from the Federal Deposit Insurance Corporation (FDIC) and credit union failures from the National Credit Union Association (NCUA). Whenever you're considering opening an account at a new institution, in which situation would a savings account be the best investment to earn interest?, simply check that it is an FDIC or NCUA member.

You'll also find that the federal regulation limiting withdrawals from a savings account to six per monthly cycle will be in effect on any kind of bank savings account, whether it's a traditional or a high-yield account. Given all this, it's worth learning how to find and open a high-yield account and considering whether it would be worth adding one to your financial portfolio.

Deciding How You'll Use a High-Yield Savings Account

A high-yield savings account should, of course, make up only a part of your overall financial portfolio. Consider how you'll best use the account to complement your other savings and investment strategies and from there determine how much cash you think is prudent to keep liquid for your particular situation.

For instance, is the savings account meant to serve as an emergency fund? In that case, financial experts typically recommend having three to six months' worth of living expenses on hand.

Perhaps instead you're using a high-yield account to save up for a large purchase, such as a house, a car, or a big vacation, which you'll make within the next five years. On that time horizon, it's best not to put the funds into investments that could lose their value. So periodically socking funds away in a high-paying savings account can help you protect your principal while applying interest earnings to your savings goal.

Still others will open a high-yield savings account not for a specific purpose but simply to house surplus cash that they sweep out of their checking account. Since checking interest rates are generally minuscule or zero, moving extra funds into savings when you don't need them to cover day-to-day transactions can provide a monthly interest payment you wouldn't otherwise earn.

Of course, more than one of these options can be employed to segregate your savings for simultaneous uses or goals. Many institutions allow you to open more than one savings account free list of real bitcoin address even give them personalized nicknames (e.g., Car Fund, Vacationetc.). Or you can open a high-yield savings account at more than one top-paying institution. Multiple savings accounts can facilitate easy tracking of your progress toward goals and make it simpler to keep your hands off money you don't want to touch, such as your emergency fund.

What to Look for in a High-Yield Savings Account

Whether you're shopping for a high-yield account at a new institution—or are lucky enough to have one on offer at your current bank—it's always wise to compare options across the marketplace. Differences in interest rates and fees can add up over time, especially if you're keeping a relatively large balance in savings. Here's what to look for and compare:

In 1 minute

When you don’t have much time to reach your goal, you can’t afford to make a risky investment. Thankfully, you can earn interest without putting everything on the line. Here’s how.

Bonds

Bonds are one of the most common types of financial assets. They represent loans, which a business or the government uses to pay for projects and other costs. Just as you pay interest when you take out a loan, bonds pay investors www.oldyorkcellars.com’ll typically see lower returns than you might with stocks, but the risk is generally lower, too.

High-yield cash accounts

High-yield cash accounts are similar to traditional savings accounts, only they are designed to earn more interest (and may come with more restrictions). These are great when you need your money to be readily available to you, but still want to earn some interest, in which situation would a savings account be the best investment to earn interest?. And to top it off, many high yield cash accounts are offered at or through banks so your deposits are FDIC insured, so there’s minimal risk.

Compound interest

The longer you invest, the more time you have to earn compound interest. This is the interest you earn and the interest your interest earns. That’s right. As you accrue interest, that interest makes money and that money in turn makes more money. The more frequently your interest compounds, the more you can earn.

In 5 minutes

Want to earn interest? You usually have to take some risk which means you could lose some money.

Financial assets can gain or lose value over time. And investments that have the potential to earn greater interest often come with the risk of greater losses. 

But there are ways to lower your risk. If you have a short-term financial goal or you’re just cautious, you can still earn interest. It might not be much, but it will be more than you’d get keeping cash under your mattress (don’t do that).

In this guide, we’ll look at:

• Bonds
• High-yield cash accounts
• Compound interest

Bonds

Bonds are basically loans. Companies and governments use loans to fund their operations or special projects. A bond lets investors help fund (and reap the financial benefits of) these loans. They’re known as a “fixed income” asset because your investment earns interest based on a schedule and matures on a specific date.

Bonds are generally lower-risk investments than stocks. The main risks associated with bonds are that interest rates can change, and companies can go bankrupt. 

Still, these are typically fairly stable investments (depending on the type of bond and credit quality of the issuer), making them ideal for a short-term goal. With municipal bonds, you can earn tax-free interest. These bonds fund government projects, and in return for the favor, the government doesn’t tax them. Invest in your own state, and you could avoid federal and state taxes.

Even when your goal is years away, including bonds in your investment portfolio can be a smart way to lower your risk and diversify your investments. Learn more about how earning interest and bond income works at Betterment.

High-yield cash accounts

High-yield cash accounts seek to earn more interest than a standard savings or checking account, and they’re federally insured by the FDIC or NCUA. (This is usually the case but depends on the institution housing your deposits (i.e., banks or credit unions). Check to make sure your account is insured before depositing any money.)

In most cases, there’s little risk of losing your principal. Your interest is based on the annual percentage yield (APY) promised by the bank or financial institution you open the account with.

One of the great perks of a high-yield cash account is that it’s highly liquid—so you can use your money when you want. It won’t earn as much interest as an investment, but it won’t be as tied up when you need it. 

For short-term financial goals, a high-yield cash account works just fine. The key is to choose an account that meets your needs. Pay attention to things like minimum deposits, transaction limits, fees, and compound frequency (that’s often how it accrues interest). These differences affect how fast your savings will actually grow and how freely you can use it.

Compound interest

Compound interest refers to two things: 

1. The interest your investments or savings earn
2. The interest your interest earns

It’s your money making more money. If you want to build wealth for the long-term, investing and allowing your interest to compound is one of the smartest moves you can make. The sooner you invest and put your money to work, the more you can expect to have down the road.

Compound interest starts small, but it grows exponentially. Over the course of decades, it can easily become hundreds of thousands of dollars depending on how much you invest upfront. Your investment grows faster because your interest starts earning interest, too. If you start young, you have safest way to buy cryptocurrency huge advantage: time is on your side!

The graph below shows that if you invest over time, compound interest can grow your portfolio much quicker than just saving cash over time.