Why the generic bank account is a bad investment
Banks will only give you a low interest rate and at times may even charge fees. It is much more beneficial to invest extra money outside of your emergency fund into some type of higher yielding account. Banks may yield 5% if you are lucky and even some stocks will only get you 1%-8%.
What I don’t understand is why people are fine with this low growth when you could be making 10% or more. Even the SP500 itself yields about 10%.
Cash example:
You have 10k in either the bank or in a mutual fund making 5% in the bank and 10% in the mutual fund. Bank per year=$500. Mutual fund per year=$1000.
The only advantage to having money in the bank is that you have a guarantee of 250k from the government if the bank is robbed. Liquidity should also be better if not in something that you must sell first but is it ever convenient to go to the bank? The only other alternative is that interest rates suddenly skyrocket.
First you should come up with a goal for saving. The average of 10% yield is easy with limited risk. Many options for this type of results include mutual funds, REITs, ETF, crowdfunding, etc. When vetting for possible opportunities you want to make sure they have been around for recessions (2009/2020) and still have done well. They should be profitable, and you should not lose the initial capital. A stock can have great dividends but not be profitable and will likely lose value over time.
Of course, more risky actions can be taken to yield a better return.
Examples include:
Large gap mutual funds 18-20%
Individual stocks 10-100% or more
Buying real estate 10-100% or more
Selling stock options 20-50%
Business investment
Others
The only money that should be in the bank is what you are spending or your emergency fund.
Please feel free to check out my other articles.