You will NEVER get wealthy with a savings account

Let me explain

(thread)

Before I get into the analysis

I want to say this... savings accounts are GREAT for emergency funds

I, myself, hold my emergency fund in a savings account

However

You will NOT be able to become wealthy with just a savings account, you must invest

As of 2020, the average interest rate of a savings account is 0.05%

“BuT wHaT AbOuT HiGh InTeReSt SaViNgS AcCoUnTs?”

Personally, I bank with Ally, and my current “high interest” savings account rate is 0.80%

So let’s run an analysis on both

Let’s assume the following people already have a fully funded emergency fund!

“invests” her money into a 0.05% savings account

“invests” his money into a 0.80% savings account

decides to invest his money into the stock market (8% average return)

All 3 of our people set aside

$400/month into their accounts for retirement

They are all 25 years old

They all plan to retire at 55 and live off their investments (hopefully)

Let’s do it

After 5 years

They each have contributed $24,000

account will be $24,029

account will be $24,478

account will be $29,390

Not much of a difference here... YET

Let’s look after 15 years

After 15 years

They each have contributed $72,000

account will be $72,269

account will be $76,471

account will be $138,415

Notice how is starting to pull away from the pack

Let’s look after 30 years

After 30 years, planned retirement age for all 3 of them

They each have contributed $144,400

account will be $145,082

account will be $162,688

account will be $596,143

What does this teach us?

Savings accounts are GREAT to hold your emergency funds

BUT

They are not a great way to build wealth

Even those “high interest” savings accounts aren’t going to build you wealth either

And, you’ll lose to inflation too

What’s the best way to build wealth?

INVESTING

Your money will be in a place it’s working FOR YOU

Not against you (or even losing you money to inflation)

I hope this thread helps explain the importance of investing

Rather than a savings account to build wealth

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I appreciate you reading this far and I plan to continue to provide VALUE on your feed

@DecadeInvestor