It depends on a few factors. How long do you have? Do you need to access the cash soon? How risk averse are you?
How long do you have?
People usually save money so that in three years or less they can buy a car, go on a big trip, or replace their roof. But if they are looking at a goal that is more than 3 years away, say retirement or establishing another stream of income, then it is BEST to invest. The more time you have for your investment to ride the waves of the market, the better.
When do you need access?
The next consideration is how soon you need to get your hands on your money. When you invest, you may incur fees and penalties if you access the funds before a certain time period. The most common example is the Individual Retirement Account (IRA). This investment account will grow significantly over the years but cannot be accessed without penalty until you are 65. Savings accounts are a little more “liquid”, meaning you can access your money more easily. You may withdraw funds without penalty, but most don’t allow unfettered access. Due to federal regulation you may only withdraw funds six times per month.
What is your risk tolerance?
Your risk tolerance should be part of the decision to invest or save. When you have a savings account at a federally insured credit union like RMLEFCU, your savings account is insured up to $250,000. Investing involves risk and the risk is two-fold. Investments are not guaranteed and there is always the uncertainty regarding whether you will keep your initial investment, see a windfall, or lose the entire kit and caboodle.
With a savings account you are earning modest interest safely but with investing you can earn larger profits at more of a risk. An extreme example would be Peter Thiel investing $500,000 into a small social networking site for college students in 2005 and seven short years later selling his shares for $400,000,000. We’d say more than 800x return is pretty good but the chances of that happening for you and I are slim.
Interested in investing for retirement? Talk to Debby, our in-house financial planner!
RMLEFCU has multiple savings account options. Become a member and get a regular savings account and a checking account. Looking to save for something special? Set up a custom savings account!
Our savings accounts feature:
- No monthly service fees
- 6 withdrawals a month allowed without incurring any fees
- Link to direct deposit
- Unlimited deposits
- Earn competitive dividends on balances of $100 or more
- Free online banking & bill pay
- Free mobile banking with mobile deposit
- Free eStatements
Savings vs. Investing is not an either or proposition. Both can be a part of your financial success. To realize your success on a shorter timeline, consider opening a savings or custom savings account at RMLEFCU. Another reason to maintain a savings account is to prevent overdraft charges if your checking account balance hovers near zero.
Talk to one of our customer service representatives today to get started.