For years, I have been earning and saving my money in my bank account, putting aside emergency and future funds into my "savings" account, and money for bills and personal expenses in my "checking" account.

This has served me well, but I fear this is a road to short-term satisfaction, long-term disaster. Besides a 3% deduction from my paycheck into a retirement portfolio and a state retirement plan, I don't have any 'investment' money saved away for future purchases - and I know there are some on the horizon, like a down payment on a Car, a House Mortgage, and my future child's college education that I'd like to be able to make (in 5, 10 and 20 years respectively).

I don't know if my Savings account, with its low volatility but also low interest, is the right way to save for such major life purchases, but I want to be able to pay into my 'savings' so that it can grow as my ability to set aside money also grows, so a static savings bond doesn't sound like it would cut it either, and stock market investments seem too volatile for something so important.

How can I start setting my money aside in a savings account that will grow smarter than a simple low-interest banking account of money?

2 Answers 2


In general, the higher the return (such as interest), the higher the risk. If there were a high-return no-risk investment, enough people would buy it to drive the price up and make it a low-return no-risk investment.

Interest rates are low now, but so is inflation. They generally go up and down together. So, as a low risk (almost no-risk) investment, the savings account is not at all useless.

There are relatively safe investments that will get a better return, but they will have a little more risk. One common way to spread the risk is to diversify. For example, put some of your money in a savings account, some in a bond mutual fund, and some in a stock index fund.

A stock index fund such as SPY has the benefit of very low overhead, in addition to spreading the risk among 500 large companies. Mutual funds with a purchase or sale fee, or with a higher management fee do NOT perform any better, on average, and should generally be avoided.

If you put a little money in different places regularly, you'll be fairly safe and are likely get a better return. (If you trade back and forth frequently, trying to outguess the market, you're likely to be worse off than the savings account.)


CDs may be one good option if you have a sense of when you may need the money(-ish), especially with more generous early withdrawal penalties. You can also take a look at investing in a mix of stock and bond funds, which will lower you volatility compared to stocks, but increase your returns over bonds.

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