If you want to build financial health and wealth over time as part of your overall financial strategy, you’ll want to build a savings portfolio. However, not all ways of saving and accumulating wealth provide the same benefits. While some methods let you earn additional income through interest, others are very safe and many let you quickly access your cash. To help you make the best decision for your specific needs, we will outline the various types of savings solutions available.
Key Savings Options
Method
Pros
Cons
Piggy Bank
🟢 Easy to use, no rules
🔴 No interest, not secure
Savings Account
🟢 Earns interest, safe (FDIC insured)
🔴 Limited withdrawals, low interest
Bonds
🟢 Safe, fixed interest
🔴 Funds locked in for years
Investment Account
🟢 Higher growth potential
🔴 Risk of losing funds
Factors to Compare Savings Options
1. Interest Earnings
– What is it? The extra income that results from placing your savings in a financial institution (Savings, Checking) provides additional income to you.
– Ideal use: For those individuals who plan to save long-term and benefit from higher savings interest rates because they will also accumulate greater amounts of income over time.
– Interest Rate Comparison: Piggybank = No Interest; Savings Account ~1%-4% interest; Bonds ~2%-5% interest; Stock Market/Investing ~7% -10% interest (more carefully monitored and reviewed, but have higher risks).
2. Safety
Safety is how safe you are with your funds from being stolen or lost. Examples of this include:
The Piggy Bank: Safety? (❌) Lost/Stolen The Saving Account: Safe (✅) because you are insured by FDIC (up to $250,000) The Bonds: Safe (✅) because they are backed by either the government or companies. The Stocks: Safety? (❌) Your stock can go down in value.
3. Accessibility
Accessibility of your funds means how quickly you can have access to the currency you need when you need it. The best use of a savings account is to have access to your funds immediately in case of an unexpected expense.
For example, Piggy Bank: (⚡) You can take currency from it immediately. Savings Account: (⏳) You will receive your funds in 1 to 3 business days from the day of your transfer request. Bonds: (🚫) You cannot access your funds until the bond matures, which will be in 1 to 30 years. Stocks: (⏳) After you make a request to sell your stock, you will have access to the currency in 2 to 3
Real-Life Examples
Example A: Saving up for a New Bicycle: $200 Goal
Option 1. Piggy Bank: Keeps currency at Home, does not earn any interest. Option 2. Savings Account: Earns approximately $4/year in interest, currency is safe. Option 3. Bonds: Not the best choice, currency is locked in for too long. The best choice: Savings Account because it is safer and will earn a little interest.
Example B: Saving for College: 10 or More Years from Now!
Option 1: Savings Account (little growth—2% or so). Option 2: Bonds (safe, fixed interest—about 4%). Option 3: Investment: More risk but can provide much more growth.
Best Choice: Mix of bonds + investments for growth.
Quick Comparison Guide
Need
Best Option
Quick cash access
Piggy bank
Short-term safe savings
Savings account
Long-term safe growth
Bonds
Long-term high growth
Investments (stocks)
Activity: Select the Best Method of Saving
1. Goal—Purchase a new Video Game ($50) within 3 Months.
Option 1: Piggy Bank Option 2: Savings Account Best Choice? Answer: Piggy Bank—will not need to earn interest in 3 months.
2. Goal—Purchase a Car ($5,000) within 5 Years.
Option 1: Savings Account Option 2: Bonds Best Choice? Answer: Bonds—will provide more interest income over the 5 years.