Thu Sep 19 2024, by Tyler Gardner

Introduction

Here are the three reasons you should not put your money in a high yield savings account if you are looking for long-term growth. I'm Tyler, a former financial advisor and portfolio manager. Now, I make financial content for free so that you don't have to pay for it.

1. Limited Real Returns in High Yield Savings Accounts

By putting your money in a high yield savings account, sure, it might earn 4.5%, but that money is earning 4.5% is still depreciating at a rate of 3% annually. So your real return is only 1.5%, pre-tax.

2. Benefits of Blue Chip Dividend Stock Funds

By putting your money in a blue chip dividend stock fund instead, you might get a 3.5% return. And here's where you tell me that's 1% less than what you're earning on your high yield savings account. And this is where you're wrong. It's actually 6% more. Here's why:

• Not only do you get the 3.5% dividend, but you have invested your money in underlying assets that historically appreciate about 7%.
• Taking out the 3% inflation leaves you with a 7.5% annual return.

3. Impact of Interest Rates on Savings Accounts

Remember that the Fed has already told us they're going to cut interest rates. When they do, high yield savings accounts will be the first to cut their yields because they invest directly in short-term treasuries. Conversely, the blue chip dividend fund could actually increase in value as the underlying companies may start to reinvest due to cheaper capital availability. Moreover, more people could look to move their money to a more stable form of fixed income.

Conclusion

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