How to Store Your Money

  1. Saving and Spending
  2. Investing
  3. Research
Dollar bills with a question mark on top.

Disclaimer: This is not financial advice; it is just my opinion.

Saving and Spending

Note: Everything described below assumes you have a high-ish risk tolerance (you won’t need the money for at least 5-10 years). Think of risk in this case as a measure of how wildly your money will swing. It’s not the chance of you gaining money - at least with these methods, you will (almost) certainly gain money in the long run. Instead, think of risk as a measure of how variable stock prices will be in the short term (think financial crashes or rallies).

Basically, set aside a small emergency fund (3 to 6 months of expenses), along with a small amount of additional savings for day-to-day purchases. Put this in a high yield savings account, connected to a good checking account / credit card with the same bank to transfer and spend on demand and without any hassles. There shouldn’t be any additional fees for transferring balances between different banks, so the bank holding savings/checking accounts and the credit card bank can be different. Keep in mind that both savings/checking interest rates and credit card rewards are quite a small part of growing money in the grand scheme of things. Investments matter the most!

Savings Account

Use Ally bank. They have good interest rates and extensive support with other banks.

Also, do not use Wealthfront. They don’t allow you to do recurring withdrawals, and are quite stingy when it comes to keeping your money in their ecosystem (and trying to get you to invest it). Don’t fall for the high APR!

In addition, stick to high-yield savings accounts. Places like Bank of America keep your money secure, but your money is FDIC insured anyways, so it’s fine.

Investing

Speaking of investments… For the rest of the money:

  1. Contribute to some kind of 401k (decided by employer) or an IRA, to take advantage of tax benefits. You can’t withdraw this until retirement!
  2. Buy and hold a total market index fund (or ETF), *without trying to buy individual stocks or other index funds**. For Vanguard, these are VTSAX and VTI. For Fidelity, this is FSKAX (no ETF offered since there’s no minimum deposit). Note that Fidelity does offer a zero expense ratio option (FZROX), but it’s noticeably less stable than the other index funds. But for the others, their performance is basically identical, and the 0.04% vs. 0.015% expense ratio is negligible based on interest calculators. The best index fund will vary based on your situation.
  3. Try a roboinvestor, specifically Betterment (or Wealthfront, actually Wealthfront seems a bit better). Be careful though! Comparing Betterment’s past returns versus VTI shows a large gap. VTI averaged 8.7% annually before taxes, whereas Betterment only managed 5.7% annually before taxes, even with a no-bond portfolio. Plus, roboinvestors end up investing mainly in stuff like VTI anyways, but add a bunch of extra stuff that makes their returns more luck-based. In general, prefer total market index funds to roboinvestors.

With an average inflation in the U.S. of 3.8% per year, the actual annual growth in your purchasing power would be ~4.7% per year on average, which is MUCH better than anything a saving account could give! With this rate + compound interest, your purchasing power will double every 15 years on average.

Research

I considered all kinds of savings accounts. I also looked at various investing methods (401k, index funds, choosing stocks/hedge funds, roboadvisors, and real estate). Essential videos to watch:

Extra stuff that led me to my conclusion:

Last updated: 04 April 2023

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