Why Saving Is Not Enough for Growing Money

Saving is one way to be sure you have the money you need on hand now. Most savings options:

Traditional savings accounts, high-yield savings accounts, and money market accounts all have these three things in common. The other commonplace savings account, a Certificate of Deposit (CD), is a little different: It does require you to park your money and leave it there for a fixed period (such as six months or five years), often in return for a slightly higher interest rate.¹

If you’re looking to grow your money, however, the drawback with all of these options has to do with inflation. Even at a low inflation rate of around 1%, inflation can undermine your return on savings and maybe even erode the money you put into your savings in the first place.² So while savings accounts may help you put money aside for next year’s wedding or a rainy day, they may not often deliver much toward the goal of growing your money.

Investing comes in many more varieties, most of which may deliver higher returns on your investment if you can handle greater risk and hold onto your investments for a while. For example, here’s the potential difference in growth between a $1,000 deposit and a $1,000 investment:

Growth Difference on a $1,000 Deposit & Investment

*American Institute of CPAs’ Savings Calculator

**SmartAsset’s Asset Allocation Calculator

Some, such as mutual fund investments, are popular because they offer a straightforward way to invest in portfolios of stocks, bonds, or other financial assets. Even simpler are exchange-traded funds (ETFs), which are also portfolios of financial assets but are traded like a stock.³ Yet another straightforward investment option might be an index fund that tracks a particular stock market.⁴ Even with these relatively simple investments, though, the categories can seem almost limitless, among big, medium, and small company stocks; domestic or international stocks or bonds; tech sector or health care sector shares; corporate or municipal bonds; or other options. To learn more, read “Different Types of Equity Mutual Funds.”

To cut through any confusion, many investors rely on financial advisors. Financial advice may also help determine how you invest over time — for example, “dollar-cost averaging,” which is a strategy to invest on a regular basis as the market rises and falls, smoothing out the cost of your investment purchases.⁵ Or you could direct some of your assets into retirement accounts, for tax advantages. Taxes are often a consideration, if you do grow your money. So are fees charged for financial advice, transactions, and portfolio management.

Between the variety of assets and the volatility of stock and bond markets, it’s natural to see a wide range of returns on investment, including the possibility that the value of your investment could fall. An indication of why people invest anyway is that the S&P 500, a stock market index, has risen from just over 130 points in March 1980 to over 5,100 points in March 2024. Certainly, it has dropped in some years, but the trend is it rebounds and continues climbing.