January 20, 2022
Americans are saving more than they ever have before. In 2020, Americans were saving almost a third of their after-tax income. Most of the reason? Because they don’t have a whole lot saved, and they’re hedging against uncertainty created by the COVID-19 pandemic. The net worth of the average millennial is less than $8,000, pressing people – especially given the circumstances – to pinch their pennies and be guarded with buying decisions.
Saving money has a reputation for being a great thing, but in truth: it’s a terrible time to save your money in bank accounts. The average interest rate of U.S. bank accounts is currently 0.06%. Low interest rates encourage growth and spending, which is great for businesses and people making big purchases. However, it penalizes the savers among us. At a 0.06% interest rate, $100 in a bank account would turn a paltry $0.06 in interest after one year. That doesn’t even get close to beating inflation, which is the rate at which money loses its value.
In short: if you’re saving too much in bank accounts or bonds? You might be lighting your money on fire. Saving alone might not be enough by itself anymore, but there are a few things you can do to make the best of this era of cheap money.
Seek higher rates with online banks
If you’re still banking with banking monoliths like Bank of America or BBVA, you might enjoy the luxury of a physical branch or notary services. However, many big banks give their customers extremely low and uncompetitive interest rates. If you don’t utilize the services of a physical bank branch, you can open an account at an online bank or credit union – then deposit checks, pay bills, and manage your finances completely online.
With many online banks come higher savings rates and different services. Established services like SoFi and Ally are paying multiples higher than their traditional competitors. Unestablished, app-based services like Yotta and Onjuno are promising high interest rates with unique value propositions.
For this, it’s best to consider what you need. However, there are other alternatives to banks or credit unions.
Put your money on autopilot
Robo-advisors are a cost-effective way to invest in the stock market on any budget. You can sign up for a site like Wealthfront or Betterment, take a survey to assess your risk tolerance, and then a robo-advisor will direct your money into different funds to invest in bonds, the U.S. stock market, and international and emerging markets.
The funds – especially stock-specific funds – that robo-advisors traditionally buy tend to have much greater returns than you can expect from your bank account. They also allow you to contribute and withdraw on your schedule, which makes it easy to manage your commitment.
Of course, putting your money on autopilot is not a complete solution for managing your money and accumulating wealth. You’ll still need bank accounts to pay bills and manage your finances. However, putting some money away in robo-advisors is an easy way to create an easy-to-manage portfolio for an emergency fund, future purchases, or the like.
Build your own stock portfolio
If you’re feeling confident enough and want to try your hand at the stock market, you can try building your own portfolio by signing up for a brokerage app like Robinhood or Public, a social investing app that’s newer to the scene. With brokerage apps, you can pick and choose specific companies you want to buy stock in. Although, beyond giving you access to the stock market, there isn’t much in the way of guidance or education. So, to invest strategically and build a strong portfolio, you really have to do your homework. That is, until Front came along. No other free app rivals the level of its sophisticated, data-driven investing insights. FISCO does all the hard work for you. It uses AI algorithms to monitor companies, markets, and news 24/7 to rate stocks on each of these criteria, helping you understand the risk level of each investment opportunity.
Many investors start investing by “buying what they know.” Lifestyle investing is a quick way to jump into creating a portfolio. However, to build a well-diversified, strong portfolio that stands the test of time, you’ll likely want to consider leveraging the technology that’s readily available for investors today. With a free tool like Front that monitors markets, crunches data, keeps you on top of important news, and calculates risk, why not? We’re clearly in a new era of investing in which individual investors have more power than ever before. But, be warned, that doesn’t mean that everyone will win. Far from it. So, protect yourself by evaluating and understanding the risk of your investments, so you can build a well-fortified castle of a portfolio, instead of a house of cards.