Don’t make the wrong choice when it comes to where to put your money.
- If you have extra money, you’ll need to decide on the best use for it.
- You could put it into savings or invest it by putting it into a brokerage account.
- You should consider your goals for the funds and your timeline when deciding what is best.
When you have spare money that you don’t plan to spend, you’ll need to decide what to do with it. Typically, keeping it in your checking account isnt the best idea as money kept in your checking account is likely to be spent on everyday costs and you’ll be better off if you use your spare money to improve your financial situation.
If you aren’t going to keep the cash in a checking account, putting it into a savings account is one of your options, and depositing it in your brokerage account to invest is another choice. There are pros and cons to both, so you’ll want to ask yourself a few key questions to determine what’s best.
Will you need the money soon?
To decide if you’ll want to put money into a brokerage account or a savings account, you first need to consider whether you are likely to need the funds soon. That’s because it’s generally not a good idea to invest money you are potentially going to need to access within a few years.
If you put your money into savings, you can access the funds whenever you need it. The money will be safe in your account as long as you choose an FDIC-insured bank. And you can take the funds out quickly and easily if an expense arises, either by transferring the money directly to your checking account and using it to pay for needed expenses or by taking it out of an ATM if your bank allows that.
When you put your money into a brokerage account, on the other hand, you’ll likely be investing it. And if you invest it, you may not want or be able to access it right away.
If you’ve bought assets such as CDs or bonds, you may have to commit to leaving the money invested for a certain period of time. And if you buy stocks or ETFs, you could find the value of your invested funds goes down if a market correction occurs or economic conditions turn sour.
If you have made smart investments, you should be able to get back your money and make a profit even if you suffer temporary losses, but waiting for a recovery can take time. If you have invested money you need soon, you take a really big risk that you might have to sell at a loss if you don’t have time to wait for the market to turn around. You likely don’t want to take this chance.
Can you afford to lose it?
You also need to consider whether you can afford to lose the money that you’re putting away. If you put it into savings, that won’t happen. But if you put the money into a brokerage account and invest it, there’s always a chance of loss — even if it’s a small chance when making sound investments over the long term.
Taking a risk by investing your money in a brokerage account can make sense because you can earn a higher return on invested funds than on money in savings. But it’s not a good idea to take a chance with money you absolutely cannot afford to lose.
What are your goals for the funds?
If you need the money to accomplish a short-term financial goal, such as buying a house in a year, then a savings account is likely the best place for it. But if you want to make your money work for you to help you build wealth over time, a brokerage firm could be a better choice.
As mentioned above, you can generally earn higher returns if you invest rather than put your money into a savings account since the interest rates for savings accounts are relatively low right now. In fact, even many high-yield savings accounts typically pay under 1%, which is well below the current rate of inflation.
By considering these issues, you can decide where your hard-earned cash should go. You can make a fully informed choice and feel confident depositing your funds either into a brokerage account or savings, and it will hopefully be a decision you don’t end up regretting.
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