Save vs. Invest Your Stimulus: What's the Right Call?

Don't need your stimulus for essentials? Here's how to decide if you should stick it in the bank or invest it.

The recently signed $1.9 trillion coronavirus relief bill comes with a round of $1,400 stimulus checks. Many people who are in line for a stimulus payment will no doubt need to use that money to pay immediate bills or cover essentials, like food and medications.

But what if you don't need your stimulus for necessities because you're still working and collecting a steady paycheck? At that point, you have options. You could put your stimulus into your savings account, or you could invest that money in the hopes of growing it into a larger sum. What's right for you?

Does your emergency fund need work?

The pandemic has really highlighted the importance of having a solid emergency fund -- one with enough money to pay for three to six months of living costs. In fact, in light of the long-term jobless rates, you may be thinking that even six months' worth of bills in the bank isn't enough and that you'd rather sock away enough cash to cover more like nine months' worth.

Either way, your first goal should be to have an emergency fund you're comfortable with. So if you're not there yet, you should put your $1,400 stimulus into the bank. But if you're happy with how your emergency savings look, then you might consider investing that $1,400 instead.

The pros and cons of investing

These days, you're not going to grow your money all that much by keeping it in the bank since savings account interest rates are horrendously low. On the other hand, if you invest your money in a brokerage account, you'll have an opportunity to score an attractive return on it. And that right there is the upside of investing -- you get a chance to turn your money into a much larger sum.

But there's a downside to investing too -- your money isn't protected. If you invest in an online stock broker and the market crashes, your investments could lose value rather than gain value. On the other hand, when you put money into a savings account, you're guaranteed not to lose any money (well, provided your bank is FDIC insured and you don't deposit more than $250,000 into your account, which you're probably not doing anyway). And that's an arrangement you may be more comfortable with.

Of course, one thing to keep in mind is that if you put your $1,400 stimulus into a brokerage account and the market crashes, you won't actually lose money unless you sell off those stocks at a price that's lower than what you paid for them. If your $1,400 investment drops to $900 in April, for example, but you leave your portfolio alone, then by May, its value may be back up to $1,400. But still, there is the risk of losing money when you invest, and that's something you'll need to factor into your decision.

Being in a position where you can save or invest your stimulus check is a good thing. If you're not yet secure with regard to your savings, put that money away for emergencies. But if you're all set there, investing that $1,400 check could be a smart way to let your money grow.