This Big Reason Is Why You Shouldn’t Keep Money in Your Savings Long Term

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Don’t leave your money sitting in your savings account — do this instead.

Key points

  • It’s important to have some money in a savings account.
  • You should only keep money in savings if you’ll need it soon.
  • Otherwise, you need to invest it to earn better returns.

Putting some money into a savings account is a smart financial decision. You’ll want to keep your emergency fund in a savings account so you can access it easily. If you’re saving for anything else that you’re going to need to use the money for within the next few years, the cash also belongs in savings.

But if you are saving for the long term, a savings account is a terrible place to put your funds. Here’s why.

There’s an important reason not to keep your money in savings

Keeping your money in savings over the long term is a bad idea for one big reason: Your potential return on your funds is going to be capped at a really low level.

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Savings accounts typically pay you a small amount of interest, but the key word there is “small.” Right now, savings account rates are higher than they’ve been in a long time due to the Federal Reserve raising interest rates. And rates are still capping out at around 2.5% even for high-yield savings accounts (and are much lower on standard accounts).

Earning 2.5% on your money isn’t very good. If you’re hoping to retire some day, you would need to save a huge amount of money to be able to do that because your funds wouldn’t be working very hard for you and you wouldn’t benefit much from compound growth as a result. Compound growth is what happens when your funds earn returns, and then interest gets applied to that amount, enhancing your total.

Growing your savings is hard at a low interest rate

If you wanted to end up with a $1 million nest egg and you earned just 2.5% on your money, you’d need to save a shocking $1,898.13 per month if you started 30 years before…

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