[Summer Remix] 100: High Yield Savings vs. Stocks: Who Wins?

Let’s address the elephant in the room first: what does the phrase “stock market” mean to you? 

Fear! Panic! Crash! 

We get it. But we’re here to tell you… the stock market ain’t that bad!

There are a lot of misconceptions about investing in the stock market, thanks to fear-mongering in the news, horror stories from family and friends, and a lack of education about the stock market in general. Your fears are valid, but they can also hold you back from growing your wealth. Your fears may also be why high yield savings seems like the better option for your money. 

In this episode (Episode 100, by the way 🎉), we talked about the differences between high yield savings and stocks. We know you’re probably a big fan of saving because it’s “safe,” right? Well, we’re about to rock your world.

 

WHAT YOU’LL LEARN

• First, Danielle and Dustin get personal

• Why people are talking about high yield savings

• Comparing $10k in high yield savings vs. $10k in stocks 

• The return on high yield savings

• How the inflation rate affects your savings

• The return on stocks

• Which conditions affect your return

• How high yield savings are best used

• Why “high yield” is a misleading marketing term

• How fear can hold you back from investing

• Where misconceptions about the stock market come from

• How to use fears to your advantage

• What to remember when you hear a stock market horror story

• The secret to investing

• The three things to remember when investing

Comparing investments in high yield savings and stocks

What would happen if you put $10,000 in a high yield savings account five years ago, and it compounded 2.5% every year? You’d have a little over $11,000 now, just for keeping it in the bank. If you started ten years ago, make that a little over $12,000. If you added $100 into it every month, too, you’d have over $26k. Compound interest + saving =  a pretty decent return, right?

That’s what it looks like… but don’t forget about the inflation rate, folks. Online banks may sell you on a 2.5% compound interest rate, which seems better than other banks who might offer you less than 1%. But the inflation rate usually averages out to about the same. Which means, as we talk about in the episode, that you’re really just keeping up with the cost of living when you save with a high yield account! The interest rate and inflation rate are the same. You’re not growing your money; you’re treading water. *Insert Debbie Downer noise here*

So how can you actually potentially grow your money? With stocks. Using historical data, we found that if you invested $10,000 in the SMP 500 five years ago and it compounded yearly, your return would be nearly $17,000. How about ten years ago? You’d have nearly $35,000. 

And here’s the kicker: if you invested in the stock market ten years ago and added $100 every month, you’d have over $57,000. That’s more than double the amount in your hypothetical high yield savings — and it’s almost a 600% return on your money. Bananas, right??

Clearly, stocks are the winner, but that’s not to say that high yield savings accounts don’t have a place in your financial strategy. High yield savings are great for emergency funds, or having cash on hand should you need it for the next few years to buy a house, for example. Use a high yield savings account for your short-term bucket, and for the projects you know are happening in the next year or so. Stocks, on the other hand, are great for your long-term bucket, like saving for retirement or .css-j9qmi7{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:row;-ms-flex-direction:row;flex-direction:row;font-weight:700;margin-bottom:1rem;margin-top:2.8rem;width:100%;-webkit-box-pack:start;-ms-flex-pack:start;-webkit-justify-content:start;justify-content:start;padding-left:5rem;}@media only screen and (max-width: 599px){.css-j9qmi7{padding-left:0;-webkit-box-pack:center;-ms-flex-pack:center;-webkit-justify-content:center;justify-content:center;}}.css-j9qmi7 svg{fill:#27292D;}.css-j9qmi7 .eagfbvw0{-webkit-align-items:center;-webkit-box-align:center;-ms-flex-align:center;align-items:center;color:#27292D;}