Mutual Funds vs Savings Account

Before investing or saving, you need to know and decide what you’re saving for in the first place.

If you are a person who has a steady income and has decided to plan for the future, there are various ways to go about it. You could play it safe, and open a savings account that could keep your money saved and safe, all the while bearing interest as well. The second way is to play it a little aggressive and invest in mutual funds. Let’s take a look at the different parameters that will help you choose either or.

How safe is my money?

As you must know, a savings account is the relatively safer bet. It is less likely to go down unless the bank goes down. The risk factor when it comes to savings account is minimal when you compare it to mutual funds. The stock market is known to be extreme. The highs can be high but the lows can be really low. The temptation to cash in the shares needs to be controlled as mutual funds along with being riskier are also a waiting man’s game. For people who want to make money off their money but not really risk takers, there are low risk versions of mutual funds called money market funds as well.

How do I multiply my funds?

Keep your money in a savings account and you can gain interest. Depending on the bank, you may earn higher interests or lower. But with that also come rules of the minimum balance amount, processing/withdrawal fees etc. Mutual funds on the other hand are riskier but hold a lot more potential to make more money. As they say, if you are willing to take the risk, you are eligible to enjoy the rewards. To sum it up, returns are greater with mutual funds as compared to savings accounts.

What is the guarantee?

There are no guarantees when it comes to dealing with financial investments. You can insure your life, your health, and your vehicle but sadly not your mutual fund investments as they are private investment firms and not regulated by the FDIC. Your savings account is related to a bank, therefore it is covered by the Federal Deposit Insurance Corporation (FDIC).

Which one is easier to open?

With the digital revolution in banking, opening a savings account and investing in mutual fund folios have both become really easy. If you want to open multiple savings accounts though, you might need to go through the process and documentation all over again. In this scenario, mutual funds work on the basis of the common KYC, so that the asset management company doesn’t require documentation again if you want to diversify and want to invest in multiple folios.

Before investing or saving, you need to know and decide what you’re saving for in the first place. These kind of decision need to be taken after proper research, and not under the influence of friends and colleagues. Check your income, set goals, and then decide what suits you the best.

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This content has been created in association with YONO SBI