Could $1,000 Be Better in a Savings Account than the Stock Market?

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KEY POINTS

  • Don't keep extra cash in your checking account -- give it a chance to grow.
  • If your extra $1,000 is earmarked for retirement savings and you won't need it for many years, a brokerage account could be a good place to put it.
  • But if you want it for a shorter-term goal or an emergency fund, a high-yield savings account is a better idea.

Decide based on your money goals and timeline.

Do you have a little extra cash lying around these days? If you've got, say, $1,000 extra hanging out in your checking account, you should know that it pays to move it out of there and into an account where it will grow.

Ideally, your checking account is the place to keep cash you need in the near term, such as for paying your bills. If you keep money for the future there, it will lose value thanks to our old friend inflation. When it comes to earning more money on your money, you have options. What if you invested it?

You could open a brokerage account and buy ETFs (exchange-traded funds) or shares of individual stocks, for example. Or you could opt for a tax-advantaged retirement account, such as an IRA. This way, you could reduce your taxable income by $1,000 for the year you fund the account (you would have to pay taxes on your withdrawals in retirement, however). If you'd rather pay taxes upfront on that $1,000, go with a Roth IRA account instead. These aren't your only choices for that $1,000, however. You could put it into a bank account that earns interest.

Bank account options

Your options for your $1,000 include:

Our Picks for the Best High-Yield Savings Accounts of 2024

APY
4.25%
Rate info Circle with letter I in it. 4.25% annual percentage yield as of July 13, 2024
Min. to earn
$1
APY
4.50%
Min. to earn
$0.01
APY
5.10%
Min. to earn
$0

There are different rules for different accounts (for example, if you decide to open a CD, you won't be able to withdraw your money without penalty for a certain period of time that you choose).

The easiest interest-earning account to manage is a savings account. With one of these, you'll earn interest (and the best high-yield savings accounts are earning upwards of 3% APY right now), and can withdraw your money pretty much at will, without risking the penalty of closing a CD account before the term is up.

Consider your goals and your timeline

The best way to decide where to put that $1,000 is to consider what you're hoping to do with the money. Is it going to form the start of retirement savings for you (and therefore have decades to grow)? Is it the beginning of a down payment for a home? Or is it going to become your new emergency fund, waiting in the wings for when you have a surprise bill you can't pay for with your regular earnings?

If you're intending to grow your $1,000 into a comfortable retirement, you'll earn much more return on the investment over the next few decades than you would if you opted for a savings account. After all, the S&P 500 gained value in 40 years out of the last 50. Its average annualized return was 9.4%. However, the market can fluctuate wildly over the short term, which is why it's best to invest money over the long term (such as for retirement).

If your $1,000 is for a home purchase or an emergency fund (or some other shorter-term need), it's a better idea to opt for that high-yield savings account. Why? For starters, your money will be protected. Choose a bank that is FDIC-insured, and in the event of bank failure, your money (up to $250,000 per eligible account) will be returned to you. This is not the case for money in a brokerage account. You'll also enjoy earning interest on your $1,000, and it won't be dependent on the performance of the larger stock market. If you open a savings account earning 3% APY, you'll make $30.42 on your $1,000 in the first year.

You're not going to find a high-yield savings account offering you 9.4% back, of course -- but remember you can only reasonably hope to earn that much in the market over a period of many years. In the short term, money in a brokerage account could lose value, so it's not a good idea to put money into one if you know you'll need it soon. Opt for a good high-yield savings account instead.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

Two of our top online savings account picks:

Rates as of Jul 13, 2024 Ratings Methodology
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American Express® High Yield Savings Citizens Access® Savings
Member FDIC. Member FDIC.
Rating image, 4.00 out of 5 stars.
4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
Rating image, 4.00 out of 5 stars.
4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor

APY: 4.25%

APY: 4.50%

Min. to earn APY: $1

Min. to earn APY: $0.01

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