Before you think about investing - let’s take a look at the basic investment vehicle that your parents have probably been telling you about since you were 5 - a plain old savings account. Unfortunately, your parents’ advice might be somewhat lacking in this particular respect. Let’s take a look at some pros and cons of using a savings account.

What Your Parents Didn’t Tell You

While it may seem great to have money lying around in a savings account, what you may not know that it’s probably just sitting there deflating. That’s right - just by “saving” your money, it’s dribbling away slowly. It’s kind of like your money is sand and you put it into an hourglass. The money that you have worked so hard for is just seeping away one grain at a time.

This may seem counterintuitive since you seem to be getting more money in the form of interest. If you put $10,000 into your savings account and get back $10,105 next year, how can you possibly be losing money?

Inflation

Well, you’re not actually losing money strictly speaking but rather what the money can buy. Just because you have $20,000 in 30 years instead of $10,000 doesn’t mean that the $20,000 is worth more. Apples might cost $1 today, but might cost $5 in 30 years. So even though you’ll have twice as much money, you can only buy 4000 apples instead of the 10,000 you can buy today.

This is because of inflation. Money decreases in value over time (so your $10,000 is automatically worth less next year even though it’s the same amount) generally speaking. Even though a savings account gives you some interest, it’s generally not enough to keep you ahead of inflation. So even though your money amount is going up in your account, the actual value is going down. This is why saving is generally not a good way to get rich or even have enough money to feel secure.

A Safe Spot For Your Money
On the other hand, you shouldn’t be too eager to put all your money into stocks or whatever the big thing is at the moment. Sure, losing a few % a year of the value of your money is not a good thing, but it’s certainly better than losing all of it on a company that goes broke.

Generally speaking, it’s not a bad spot to put your money while you figure out a better place to put it. After all, it is FDIC insured, so it’s certainly safer than putting it under your mattress. Just don’t keep it there too long though and be sure to do something with it - soon!