When you start to have a little extra cash, a big choice to make is whether you should save it or invest it. It differs based on the person and situation, but understanding the differences and risks for each option can help you make a smart decision for your finances.
Savings Accounts
Savings usually refer to putting your money into a savings account, money market account, or certificate of deposit (CD) at a bank. These options are typically low risk and accessible to many. You should consider putting your extra money into savings if you need the money within a few days, you’re building an emergency fund, or you’re saving for a specific short-term goal such as a vacation or car.
- Pros: Your money is safe and FDIC-insured, it’s easy to withdraw whenever needed, and no risk of loss.
- Cons: Low interest rates will mean that your money barely grows, and inflation can negatively impact you.
Popular Savings Accounts
A common savings account that a lot of individuals have to consider is a 529 savings plan. A 529 college savings plan is a great way to save for a student’s future education expenses. The account is established in the student’s name, and the account owner retains control of the account. The account owner chooses the investment options and can change them at any time. The account funds can be used to cover tuition, room and board, books, and other qualified education expenses at any accredited college or university.
There are a few requirements to open up a 529 college savings plan.
- The account must be established in the United States by a state or educational institution.
- The account beneficiary must be a U.S. citizen or resident alien with a Social Security number or tax identification number
- The account owner must be 18 years of age or older and have a valid Social Security number or tax identification number.
As long as you meet these requirements, you can open up a 529 college savings plan today.
Best 529 Savings Plan Providers
Among the best providers that offer 529 college savings plans are Fidelity, Schwab, CollegeBacker, and Vanguard. All four providers have a variety of options to choose from, and all have been rated highly by Morningstar. In addition, all four provide free college savings calculators on their websites.
- Fidelity‘s calculator allows you to input your child’s age, the amount you’ve saved so far, and the monthly amount you plan to save.
- Schwab‘s calculator is similar, but it also allows you to input the expected rate of return on your investment.
- Vanguard‘s calculator is the most complex, allowing you to input a variety of factors, including the expected rate of return, inflation, and the number of years until your child starts college.
- Another option is CollegeBacker, which offers a 529 plan with no fees and no minimums. They also have a goal calculator on their website that can help you figure out how much you need to save. In addition, they offer advice and resources on their blog to help you make the best decisions for saving for college.
Overall, all four providers offer excellent options for saving for college, and their free calculators can be a valuable tool in planning your savings strategy.
Investing: Growth With Risk
If you’re not looking for a college savings account or personal savings account, you may find yourself looking into investing. If you’re considering investing, you should be sure you don’t need the money within 5 years and you already have an emergency fund. Common reasons for investing are saving for retirement, a house payment, or generational wealth. A big benefit of investing is the potential for higher return over time and you can often outpace inflation.
Being able to invest while on the go is a necessity for some people and investment apps make this conveniently possible. Investors, from beginners to seasoned day traders, benefit from advanced technology, which facilitates the ability to trade or invest from nearly any location or situation. All investment apps are not the same, however. Some are designed to introduce investing to new clients and others are more involved, designed for those with more experience in the market.
Best Investing Apps
- Merrill Edge: The Merrill Edge investment app is owned by Bank of America. You can use it on an Android, iPhone or iPad, although the iPad features are just slightly more limited at present. There are even real-time market tracking options for the Apple Watch.
- You Invest by J.P. Morgan: You Invest by J.P. Morgan is a Chase Bank company. Its apps services are integrated with Chase and J.P. Morgan banks, meaning there is no specific You Invest app available to date. You Invest does boast reliability and trust due to its affiliation with two long-standing banks.
- Stash: The Stash investment app allows you to invest starting with only $1 and is available for iOS and Android. This service is geared toward enticing new investors into the market by focusing on convenient micro-investing opportunities. Stash does provide guidance via customer service as well.
- Acorns: Acorns investing app boasts top-level security encryption and an ability to help make your money grow. Services include automated retirement savings and investment advice. The app is available for iOS and Android
- SoFi Active Investing: SoFi Active Investing offers commission-free stock and ETF trades with no minimum account balances. The app is available on iOS and Android, and works on the iPhone, iPad and Android devices.
It’s important to remember that risk isn’t always bad when it comes to investing. It’s possible to invest with a higher risk and get a higher reward. Take time to consider all options before choosing a provider for a savings or investing account.
