Did you know that most millionaires don’t have a million dollars sitting in their bank account?
That’s right. Most wealthy people have their money allocated in different investments and savings vehicles.
This is because wealthy people understand that your money decreases in value over time because of inflation. Wealthy people also understand that you’re essentially leaving money on the table by not optimizing some of the methods we’ll talk about today.
And today, we’re talking about the different places you can put your cash aside from a bank account so your cash can work for you and make extra money.
In this article, I’ll give you a list of different savings vehicles you can use to not only beat inflation, but also build your wealth over time.
I’ll explain what these different savings vehicles are and I’ll break down some pros and cons about each one so you can decide whether or not you want to include one of these methods in your own financial plan.
If you’re ready, let’s buckle up and get started!
High-Yield Savings Account
First on our list is the high-yield savings account. The high yield savings is an account that earns more interest than a traditional savings account with your bank.
Pros: One reason you may favor a high-yield savings account over other options, is because your cash remains liquid and accessible in case you need to make withdrawals. So, if you’re looking for a place to keep your emergency fund, the high-yield savings account might be a good option for you.
Cons: Now this isn’t a huge con, but one thing to note about the high-yield savings account is that the average APY is 0.40% compared to the national average of regular savings accounts at 0.06% APY. The difference in yield isn’t a huge difference, but it’s still better than your standard savings account.
Money Market Accounts
Next we have the money market account. Like the high-yield savings account, this is a type of savings account that typically earns higher interest than an ordinary savings account. The major difference between the two is that money market accounts allow you to write checks and use debit cards while most high-yield savings account don’t offer either.
Pros: The money market account is a popular financial vehicle for those looking to store their money somewhere they can easily make withdrawals. Yes, just like the high-yield savings account, the money market account allows you to withdraw funds unlike other savings vehicles like certificates of deposits or a Roth IRA.
Cons: One con about the money market account is that they usually require large minimum deposits and balances which makes them out of reach for some people.
Certificates of Deposit
Third on our list is “certificates of deposit” also known as CDs.
A certificate of deposit is a financial product provided by banks which allows you to earn a fixed interest rate on your savings when you agree to put that money aside and not touch it.
The way it works is that you deposit your money into the account and agree with the bank not to make any withdrawals until a specified date called “the maturity date.”
When you cash out your CD at the maturity date, you’ll receive your principal payment along with your accrued interest.
Pros: A positive note about CDs is that they have set interest rates which makes them one of the safest savings and investment options available as they’re essentially guaranteed by the bank. And since you can’t touch your CD until the maturity date, you won’t be tempted to use the money that you set aside.
Cons: The downside of a CD is that if you do decide to make an early withdrawal, you will likely incur a penalty fee.
Online banks offer the same services as brick-and-mortar banks do AND they often offer higher APYs. Online banks are becoming more reliable and popular as technology advances these days. And if you decide to shop around for an online bank, just make sure it’s FDIC insured.
Pros: A large benefit of having a savings account with an online bank is that they usually come with a higher yield APY. These interest rates tend to be 10-20X higher than brick and mortar rates.
Cons: Online banks don’t typically offer in person customer service. So if you prefer to speak to someone in person whenever you have problems or questions about your account, then online banking may not be the best route for you. Customers usually access their accounts through a phone app or computer. But many online banks have call centers open 24/7 to accommodate you.
Next we have the Roth IRA. Saving for retirement is an essential step in reaching and maintaining financial health.
And the Roth IRA is an excellent tool to help do that. The Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals because you pay taxes before you make contributions.
A Roth IRA is especially useful if your job doesn’t offer a retirement plan and it’s especially popular for those who have a long ways to go before retirement.
Pros: There are plenty of pros to having a Roth IRA in addition to its tax benefits. Some of these additional pros include no minimum contribution requirements (which means you don’t have to make contributions every year if you don’t want to or can’t afford to) and no minimum distribution requirements (which means you can let your savings continue to grow even after retirement.
Cons: There are contribution limits. Ats of 2022, you can’t contribute more than $6,000 per year to your Roth IRA. Which means your savings can only grow so much over time since you’re limited on how much you can contribute. On the bright side, this contribution limit increases every few years.
Invest in the stock market
The last one on our list is to invest in the stock market.
Now compared to the other options we discussed today, investing in the stock market comes with higher yields and MORE risk.
At Call to Leap we believe in conservative investing and we don’t encourage our audience to invest in highly volatile securities.
Some low-risk investments in the stock market can include:
Stocks with strong fundamentals.
Dividend paying stocks with a strong history of dividend growth.
To reiterate, investments in the stock market give a higher yield than any type of savings account we discussed today. However, a con to this is that investments in the stock market come with higher chances of volatility. If you’re not familiar with investing in the stock market, that’s okay! The stock market isn’t intimidating once you learn the basics and get some experience. If you’re interested in investing, I would encourage you to do your own research. I have plenty of great resources on my YouTube channel and my website to help you get started.
When it comes to your money, I encourage you to take things slow and make sure you feel comfortable with what you’re doing.
To give you some extra insight, here’s a quote from Kevin O’leary, the famous investor from the show Shark Tank:
“Here's how I think of my money: soldiers. I send them out to war every day. I want them to take prisoners and come home so there's more of them.” - Kevin O’leary
As you gain experience with personal finance, you’ll build your own strategy to reach your financial goals.
Keep in mind that the savings vehicles on this list we discussed today vary in terms of their volatility and their yield performance. In other words, some may have minor fluctuations in price like a money market account and some may have higher volatility like stocks.
You may choose to distribute your money in a mixture of safer and liquid savings vehicles along with some high yield investments however you’d like.
For example, you can mix things up and invest in dividend paying stocks (an investment with higher volatility) while simultaneously putting your money away in an online savings account (something with lower volatility) to raise overall yield.
Remember, the ultimate goal is to build wealth and at the very least, beat inflation. The savings vehicles discussed today are not designed to make you filthy stinking rich.
Rather, look at these tools as a way to safely build your savings over time in a healthy and conservative way.
You can continue to educate yourself by reading the articles in our archive. And you can even join our membership! With our premium membership, we’ll teach you not only how to invest in great long-term stocks, but also sell covered calls and cash-secured puts, trade LEAPS options, and generate a couple hundred to a couple thousand dollars each month. You’ll have exclusive access to our community of wealth builders & all our content, which teaches you step-by-step on how to use these strategies. You’ll also be able to ask me & our team any questions you have & we can coach you each week!