The Average American Keeps This Much Money in Their Checking Account
Image source: Federal Reserve Bank of New York.
The good news is there are better places to park your money that could give you a substantially brighter outlook. For you ultra-conservative investors who might struggle to part with your cash, a money market account might be your smartest option. Unfortunately, money market accounts are still losing to the inflation rate, but you'll have relatively quick access to your funds and be given a much juicier interest rate. I can attest that opening an account with Sallie Mae with a minimum balance of $1 and a 1.07% yield sounds much better than the whopping 0.01% I'm earning in my checking account with JPMorgan Chase at the moment. Yes, I really did say 0.01%.
For those of you with a higher tolerance for risk and a craving for long-term rewards, investing in the stock market is always a novel idea. Stocks have returned an average of 8% historically. You will almost assuredly experience the ups and downs associated with investing at some point, but the key is to hang on over the long term and allow your winners to do the work for you.
An ingenious idea for investors with moderate levels of risk is to consider purchasing highly liquid exchange-traded funds, or ETFs. ETFs allow you to buy a basket of stocks representative of a country, sector, market, growth style, and so on. They give you instant diversity, quite a few pay a dividend, and if you choose a highly liquid one, you can hit the exit anytime you want if for some reason you need your investment money back.
But the keenest investors are going to consider taking their excess checking account capital and parking it in a Roth IRA. A Roth IRA is a nifty investment tool that allows your money to grow completely tax-free for life as long as you don't make any unqualified withdrawals before age 59 1/2. Best of all, unlike its IRA peer, the traditional IRA, you aren't required to begin making regular minimum withdrawals each year (which is the case once you turn 70 1/2 with a traditional IRA), and your contributions to your IRA don't have to stop once you turn age 70, as with a traditional IRA. A Roth IRA will allow you to keep investing for as long as you'd like without having to remove a penny. It's a great way to use compounding to your advantage, and also a nice way to retain your wealth as opposed to losing it to taxes.
So, what are you waiting for? Put that excess checking account money to work!
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The article The Average American Keeps This Much Money in Their Checking Account originally appeared on Fool.com.
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