Saving vs. investing: Which strategy works best for growing and protecting your wealth?

As you enter your 50s and beyond, the way you handle your money shifts from growing wealth to protecting what you’ve worked so hard to build. That’s when it becomes important to balance your approach to saving and investing. Your goal isn’t only growing your nest egg, but also making sure that your money lasts through retirement, survives life’s curveballs and passes on to your children or loved ones.

The core difference between saving and investing lies in the accessibility of your money and the risks you take with it. Saving means keeping your money in secure accounts like high-yield savings or certificates of deposits, where you’ll earn modest but guaranteed returns that currently range between 4% to 5% APY. Saving in these accounts typically comes with little to no risk of losing your principal.

On the other hand, investing involves buying assets like stocks, bonds or mutual funds that can potentially earn higher returns that have historically ranged from 7% to 10% annually. However, investing comes with a higher risk of losing value when markets decline.

A trusted financial advisor can help you create a comprehensive retirement plan that balances saving and investing to meet your goals. Let’s take a closer look at how saving compares to investing to help you decide the best approach for your golden years.

Saving vs. investing: What’s the difference?

Let’s break down these key differences. With savings accounts, your money stays protected — a $10,000 deposit remains $10,000, plus the interest you earn. For example, the best high-yield savings accounts let you earn several times the national average while protecting your money against bank failure. The Federal Deposit Insurance Corporation (FDIC) protects up to $250,000 of your deposits at each member bank.

Investing works differently. The same $10,000 invested in a diversified portfolio of stocks and bonds can gain or lose value over time. Nothing protects you against losing value due to market conditions. However, some of the best investment platforms offer insurance from the Securities Investor Protection Corporation (SIPC), which protects your account for up to $500,000, including $250,000 in cash, against company failure.

The taxes you pay for savings and investments are different. Interest from your savings account gets taxed as ordinary income — meaning if you’re in the 22% tax bracket, you’ll pay $220 in taxes for every $1,000 in interest earned. Investments offer more favorable tax treatment. While profits from investments sold within a year (called short-term capital gains) face the same ordinary income rates, holding investments longer than a year can slash your tax bill.

These long-term capital gains typically get taxed at just 0%, 15% or 20%, depending on your income. For example, married couples filing jointly with taxable income up to $94,050 in 2024 and up to $96,700 in 2025 pay zero taxes on their long-term capital gains. This makes investing potentially more tax-efficient, especially when you also invest through tax-advantaged accounts like 401(k)s and IRAs.

Dig deeper: How to automate and streamline your investing with robo-advisors

The benefits and drawbacks of saving

Let’s say that you set aside $10,000 in a high-yield savings account that earns 4.50% APY. You’ll earn about $450 in guaranteed interest over the first year while keeping your money protected. If your car breaks down on a Sunday afternoon, you can quickly take money out of your savings account. Plus, even if your bank runs into trouble, the FDIC insures your savings at member institutions for up to $250,000 per depositor, per bank.

However, keeping too much in savings can cost you over time. The same $10,000 kept in savings over 10 years, even at a near-record APY of 4.50%, would grow to about $15,530. While this might sound good, if inflation averages 3% annually, your money’s purchasing power wouldn’t grow much. Plus, the Federal Reserve’s recent rate cuts have already pushed high-yield savings rates down from their decade highs.

And don’t forget about taxes: If you fall in the 22% tax bracket, you’ll owe $99 in taxes on the $450 you earn in interest, leaving you with $351 in actual earnings. That’s why savings work best for building an emergency fund or storing money you might need soon.

Dig deeper: How much should you keep in a high-yield savings account?

The benefits and drawbacks of investing

Investing opens doors to potentially higher returns that can help your money outpace inflation and grow meaningfully over time. For example, if you invest $10,000 in a diversified portfolio earning an average annual return of 8%, your investment can grow to about $21,600 over 10 years.

Investment returns can also come with tax perks. For example, qualified dividends and long-term capital gains can get taxed at lower rates that range from 0% to 20%. Plus, while your investments aren’t FDIC-insured, the government-backed Securities Investor Protection Corporation (SIPC) insures your funds at member brokerages up to $500,000 if your brokerage fails, including $250,000 in cash. But keep in mind that this insurance doesn’t protect against normal market losses.

However, investing comes with trade-offs that can feel especially challenging in retirement. Your portfolio’s value can drop significantly — during the 2008 financial crisis, many portfolios lost 50% or more before recovering. When you need money, you’ll typically wait two to three business days to sell your investments and transfer the cash to reach your bank account.

And managing investments may require more attention. You may need to research your investments, monitor performance and understand when to buy or sell. Luckily, you can minimize this work by using a financial advisor or robo-advisor to manage your portfolio for you. These services typically cost between 0% and 1% of your portfolio annually.

Dig deeper: Best investment platforms for beginners, retirees and active traders

3 smart savings options for steady returns

As you approach your golden years, your savings need to work smarter, not harder. Here are three of the best tools to maximize safety while earning competitive returns on your cash.

1. High-yield savings accounts (HYSAs)

High-yield savings accounts are almost identical to traditional savings accounts, but they pay several times the interest traditional banks pay on your deposits. You can typically find savings accounts with high yields at local credit unions and online banks, making them a great parking spot for accessible cash.

Most high-yield savings accounts require no minimum balance and charge no monthly fees while offering APYs of 4.00% or more.

Here’s how a $10,000 balance can grow in an HYSA that earns 4.00% APY versus a traditional savings account that earns 0.01% APY:

Many HYSAs make it easy to access your funds using a debit card or with an online transfer to your checking account. And the best part is that there’s no real risk of losing your money as the FDIC typically protects your account balance for up to $250,000 per depositor, per bank.

Dig deeper: How much should you keep in your high-yield savings account?

2. Certificate of deposits (CDs)

A certificate of deposit is a savings tool that offers a simple trade-off: You agree to lock away your money for a set period in exchange for a guaranteed APY. You can find CDs with varying terms at most financial institutions, but the best rates are usually at local credit unions and online banks.

CDs become particularly valuable during periods of declining interest rates, as we’re seeing with recent Federal Reserve rate cuts. While savings account APYs can drop after each Fed cut, CDs lock in your APYs for their entire terms. For example, if you open a 12-month CD at 4.50% APY, you’ll keep earning that rate for the full year, even if savings APYs drop to 3.50% APY.

This rate protection helps preserve your interest income in falling-rate environments. The key is balancing CD terms with their rates, as early withdrawal penalties can hurt your earnings.

That’s where a CD ladder comes in. Instead of putting $10,000 in one CD, you can split your money into four $2,500 CDs:

This CD ladder earns an average yield of 4.28% APY while providing access to $2,500 every three months. As each CD matures, you can either use the money or reinvest it in a new 12-month CD at current rates, maintaining the ladder structure.

Dig deeper: What is a CD ladder? And how to build one for rolling returns

3. Money market accounts (MMAs)

Money market accounts are a hybrid between checking and saving accounts, typically offering higher APYs than traditional savings while providing more flexible access to your funds. You’ll often get check-writing privileges, a debit card and the ability to make any number of withdrawals each month.

Most money market accounts require higher minimum balances than regular savings accounts. These minimums can range from $2,500 to $10,000. In exchange, they reward you with higher tiered rates for keeping larger balances.

The sweet spot for money market accounts is when you need a combination of high yields and easy access to your money. For example, if you keep $25,000 in emergency savings, a money market account earning 4.00% APY would generate about $1,000 in annual interest while letting you write checks and withdraw funds you need through ATMs.

This makes them particularly useful if you don’t want to worry about the time it takes to transfer emergency funds from a savings account to a checking account.

Dig deeper: Should you save your money in a high-yield savings or money market account?

3 low-risk investment options for higher growth potential

These investment options can help you tap into the potential higher returns of stock and bond investments while maintaining a relatively low risk profile.

1. Dividend-paying stocks

Dividend stocks work just like regular stocks in that they represent a piece of ownership in a company. What makes dividend stocks stand out is that the companies offering them usually pay regular shares of their profits in the form of dividends.

You’ll typically often find dividend stocks at established companies in the utilities, consumer goods and telecommunication sectors. Many companies pay out dividends every quarter. For example, if you invest $10,000 in dividend stocks that pay 4.00% annually, you’d receive $100 every quarter for a total of $400 annually.

However, your total profit from dividend stocks includes any potential stock price increases on top of the dividends you receive. This can help provide even more return from your dividend stock investments.

Dig deeper: How robo-advisors can help you build a hands-off investment portfolio

2. Balanced mutual funds

Balanced mutual funds are large baskets of hundreds or even thousands of stocks and bonds wrapped up in a single investment. When you buy a share in a mutual fund, you invest in all the assets it contains.

A typical balanced mutual fund might keep 60% in stocks and 40% in bonds. The stock portion can help your money grow thanks to the stronger growth potential of stocks, while the bonds help protect your investment during market downturns since they provide regular returns.

What’s great about mutual funds, including balanced ones, is that they handle all the complicated work for you. Instead of having to research individual stocks and bonds or remember to rebalance your portfolio every once in a while, the fund manager maintains the fund’s trajectory and does all the heavy lifting for you. In exchange, mutual funds typically charge an annual management fee.

Dig deeper: What are mutual funds? Your guide to professional portfolio management

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3. Treasury bonds

Treasury bonds are a form of loans to the U.S. government — that’s why they’re considered among the safest investments available. These bonds pay interest every six months and return your principal when they mature. For instance, a $10,000 investment in a 5-year Treasury bond yielding 4.00% would pay you $200 every six months for a total of $400 annually, with your $10,000 returned after five years.

Treasury bonds offer a key advantage that you won’t find with many other assets: The interest you receive is exempt from state and local taxes, meaning you’d pay only federal taxes on your earnings. This can help you lower your tax bill while investing in one of the most reliable assets out there.

Dig deeper: These 7 investments can help you minimize your risk in retirement

What taxes do you pay on your savings and investments?

Minimizing your tax liability is an essential step toward making the most out of your savings and investments. Knowing how the IRS taxes different accounts can help you strategize accordingly.

How savings account interest is taxed

The IRS taxes interest from savings accounts, certificates of deposit and money market accounts as ordinary income based on your tax bracket.

Here’s what you’ll pay in federal taxes on your interest earnings.

Income tax brackets for the 2024 tax year

Income tax brackets for the 2025 tax year

Let’s put this into perspective. If you’re married and your combined taxable income is $85,000 in 2024, you’d fall into the 12% ordinary income tax bracket. If you earned $500 in interest income from a high-yield savings account in the same year, you’d owe $60 in taxes on that interest.

Your bank will send you a 1099-INT form during the tax filing season showing your total interest earnings. To streamline taxes, you can upload that form to a top tax platform and let the software calculate your taxes for you.

Dig deeper: How all 50 states tax retirement income

How investment returns are taxed

Investment income may receive a favorable tax treatment depending on your account type and length of hold period. While you pay the same tax rates as ordinary income on short-term capital gains on assets held for one year or less, you pay lower rates on long-term capital gains for assets held for more than a year.

Here’s what you’ll pay in federal taxes on long-term capital gains.

Long-term capital gains tax brackets for the 2024 tax year

Long-term capital gains tax brackets for the 2025 tax year

Here’s where the tax advantage of investing becomes clear: If you’re married and your combined taxable income is $85,000 in 2024, you’d fall in the 0% long-term capital gains tax bracket. This means any portions of your taxable income that came from long-term capital gains will incur zero taxes, a huge advantage over interest income from savings products.

Keep in mind that you may still owe state or local taxes, depending on where you live.

Dig deeper: Tax breaks after 50 you might not know about

FAQs: Save or invest?

Before deciding how to handle your money, here are answers to common questions about balancing saving and investing.

Is it better to save or invest money?

Neither saving nor investing is a clear standout on its own — rather, you need both to secure your retirement and future. Saving provides safety and quick access to your money, ideal for emergency funds and near-term expenses. A high-yield savings account earning above national average APY protects your principal while generating steady interest. Investing, though riskier, offers potential for higher returns that can help your money grow faster than inflation. That’s why it might be smart to keep six months of expenses in savings for emergencies and short-term needs, while investing the rest for long-term growth.

Can I lose money on my investments?

Yes, you can lose money on investments — even seemingly stable ones like stocks from established companies or bonds from the U.S. government. That’s because the value of an investment can drop due to market conditions, company performance or economic changes. One of the best ways to minimize your losses is by diversifying your portfolio as much as you can by investing in various stocks, bonds, mutual funds and more. Diversified portfolios tend to recover and grow over the long-term more steadily compared to individual investments.

How can I avoid taxes on retirement savings?

A Roth IRA offers one of the best ways to receive tax-free income in retirement. Unlike brokerage accounts and traditional 401(k) and IRAs, your money grows tax-free in a Roth IRA account, meaning that you won’t owe any taxes when you withdraw funds in retirement. For tax years 2024 and 2025, you can contribute up to $7,000, or $8,000 to a Roth IRA if you’re 50 or older.

Keep in mind that the funds you contribute to a Roth IRA come from after-tax income, so you won’t get an immediate tax break like you would with traditional retirement accounts.

Many investment platforms like SoFi, Wealthfront and Charles Schwab make it easy to open an automated Roth IRA account, often with no or low annual management fees.

What is SIPC insurance?

The Securities Investor Protection Corporation (SIPC) is a government-backed insurance provider that protects your investments at member firms against brokerage failure. This means that the SIPC covers up to $500,000 of your investment funds, including up to $250,000 in cash, if your investment company goes bankrupt. That’s why it’s worth it to make sure your brokerage provides SIPC insurance by searching the SIPC list of members. Keep in mind that this insurance doesn’t protect you from normal market losses due to price movements.

What does the FDIC’s “per depositor, per bank and per ownership category” mean?

The FDIC’s insurance limit is $250,000 “per depositor, per bank and per ownership category.” Per depositor means each person with money in the bank, whether single or joint account owners. Per bank means each bank separately, which means if you have money in Bank A and Bank B, both amounts are fully insured. Per ownership category refers to the different types of accounts you can have, such as single accounts, joint accounts, certain retirement accounts and trust accounts. Learn more in our guide to confirming your bank is FDIC-insured.

About the writer

Yahia Barakah is a personal finance writer at AOL with over a decade of experience in finance and investing. As a certified educator in personal finance (CEPF), he combines his economics expertise with a passion for financial literacy to simplify complex retirement, banking and credit topics. He loves empowering people to make informed financial decisions that improve their everyday and long-term wellness. Yahia’s expertise has been featured on FinanceBuzz, FX Empire and EarnForex. Based in Florida, he balances his love for finance with freediving, hiking and underwater photography.

Article edited by Kelly Suzan Waggoner