Comparing savings accounts versus investments are like comparing apples to oranges. Both are fruit but the structure is completely unique to the particular species.
Savings accounts are the safest way to store extra money. The Federal government will back your deposits of up to $250,000 with FDIC insurance thus leaving very little risk to the principal balance.
The money is liquid, meaning you can access your funds at any time to make deposits or withdrawals. There is a guaranteed rate of return in the form of interest rates the bank pays you for the privilege of holding your money. Ultimately a savings account is the premiere low-risk investment strategy for Americans.
Saving Accounts Are Safer
Depending on the type of investment you make, the security of savings accounts will not be there. Almost all investments put your principal at risk, meaning that you are not guaranteed to get the money you invest back out of the investment.
In addition, many investments are long term, meaning you cannot access your cash easily or without paying penalties. And no investments (apart from bank accounts and CDs) have FDIC insurance, so if the investment manager goes out of business, you risk losing it.
Are Investments Safe?
Risk comparisons of the two strategies account for the potential profitability of the investments. While savings account rates may not always offering high returns, other investments can offer significantly higher rates of returns, even into the 10% or above range that however is not guaranteed.
The best way to get the most out of your investment strategy is to have a diversified portfolio. Individuals should certainly have some money in a savings account that is safe and secure. To increase your capital gains, have an assortment of CDs, money markets and other types of securities as investments. That way you can have the best of both worlds.
