IRA versus "high interest" Savings Account - which is better? - Ask Rich / Money 101

Brandi · 01-20-2009, 11:18 AM

We recently, within the last year or so, finally realized how much we need to start putting money into some kind of investment. So, I basically went onto USAA and blindly picked what sounded best. I tried to do some research but, I'll admit, I am completely confused as far as how exactly most investments work.

Long story short, it was a toss up between a Roth IRA and a savings account with either USAA or ING. I looked at some charts showing how an IRA could pay off if we invest for like 20 years, so I went with that one.

Over the last few months, I've watched the amount in the IRA fluctuate so much, mostly going down, which worries me. I know everyone says to just be patient and ride it out, so I have. Now I'm starting to wonder though, would it be best to continue putting most of our money into the IRA? Or would we be better off focusing mainly on tucking away as much as possible into our savings account?

We've tried to do a little of both (a little in savings, but focusing mainly on IRA) and unfortunately, we can't afford to do a lot in both. So, I guess my question is which one should I be focusing on most? Do you think an IRA will really pay off more long term? We have no intentions of touching the money until we're well into retirement, so it's definitely a long term thing for us. However, I'm unsure whether the IRA will end up actually paying off more or, worse, actually putting us into a hole with no return 25 or 30 years from now? There is a sense of security by putting the money into savings, instead, where I know I'll get a certain percentage back.

And I wanted to thank you, Rich, for taking the time to answer these questions so thoroughly. You're awesome and I really appreciate all of the advice you're able to offer us

leftover · 01-20-2009, 11:27 AM

OH! You can write off what you contribute in your IRA at tax time!! Not all of it, I *think* the limit is $8000 for married filing jointly..

http://www.bankrate.com/brm/itax/tips/20010316a.asp

Brandi · 01-24-2009, 02:54 PM

I would love to have additional info! And thank you lefty for your response

Anna*Banana · 01-24-2009, 02:57 PM

I think you made the right choice with an IRA. You are exactly right, you can't look at the here and now. Its the overall picture that is important. In 25 to 30 years you WILL see an increase even if now you see a decrease.
You made the right choice!!!! I'd continue to do research but for now I'd say you made the right choice.

DakotaCowgirl · 01-24-2009, 03:30 PM

It all depends what you are looking for. If you are looking for something just for retirement, then an IRA split into different accounts is the way to go. I also recommend that you get a savings account and split it. This way, if you need money right away, you can have it.

When my DH and I are out of debt (goal...3 years), we want to start up an high interest account to put money aside for a house payment, IRA, savings for the kids, and just future in general. This way, we are all covered. We already have a IRA going and put just a bit in; but, it is better then nothing.

hteew · 01-24-2009, 09:11 PM

I am doing both but put more into my IRA than my savings account. For me, the ING account is an emergency fund and is short-term growth. My IRA is long-term retirement and long-term growth. I may be wrong but it seems in my head that I will gain more over 30 years in my IRA just from inflation adjustments than my savings account.

I have my IRA set up to invest based on my goal retirement age. So right now, my IRA is spread over some high risk stocks and a small amount of stable bonds. As I get closer to retirement it is automatically redistributed into lower risk stocks and bonds.

I think you made the right choice. You may want to look at how your IRA funds are distributed. You can always move them into something that is less risk and as reliable as a savings account.

Fidzy · 01-24-2009, 09:16 PM

We use our savings for short-term and our IRA and other investments for long term. I try not to peak at our IRA because we lost more than 10% this year of its value.

Rich Lunsford · 02-02-2009, 08:59 PM

It’s good to hear from you Brandi! Thanks for having me. It is a tough dilemma – take care of today (savings account), or take care of tomorrow (Roth IRA). First, make sure you do have (or will have soon), a substantial emergency fund savings of 3 to 6 months of living expenses that you have ready and immediate access to. This is your “financial readiness” account. You are ready for most financial emergencies that life can throw your way. Once you have the emergency fund, then long term or retirement investing becomes more feasible. If you have today protected (emergency fund), then you feel able to invest in the Roth IRA (which will likely fluctuate).

The Roth IRA is probably invested in the stock market in some way. All mutual funds are a bit different. Although the stock market has its ups and downs, the average return in the market for long term investors is about 7 to 8% per year. But you don’t get 7 to 8% every year. Some years you may return 12%, another 20%, and still another -20%. It’s a rollercoaster sometimes and keep in mind, past performance is no guarantee of future results. The savings account is a positive return but typically only about 1 to 3% per year. If I want to keep pace with inflation and protect today, then the savings account is ideal; but if you want growth potential over time then you may want to consider a mutual fund.. As you’ve found the mutual fund Roth IRA can be painful, but try to stay focused on the 20 year horizon. Have faith in the future (Roth IRA) and protect today (savings account). The folks at USAA can help you make the right choice concerning your emergency fund and Roth IRA. Give them a call!

Rich Lunsford is a CERTIFIED FINANCIAL PLANNERTM practitioner with USAA Financial Planning Services, one of the USAA family of companies. Rich holds the Series 7 and 66 securities licenses. Rich also holds the designations of Chartered Financial Consultant (ChFC®), Chartered Life Underwriter (CLU®), and CHARTERED RETIREMENT PLANNING COUNSELOR (CRPC®).

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Shep's Wife · 02-09-2009, 08:08 PM

Our IRA account has been very painful this past year. We started ours back in 2000 and when we got our end of year statement in January I felt sick to my stomach.

Now I'm stuck and don't know what to do. I don't want to lose anymore money but I don't want it just sitting in the bank account.

01-20-2009, 11:18 AM	#1 (permalink)
Brandi “If you want the last word, apologize.” Join Date: Jan 2004 Posts: 39,594 Blog Entries: 1 Classifieds: (3) Activity: 21% Longevity: 99%	IRA versus "high interest" Savings Account - which is better? We recently, within the last year or so, finally realized how much we need to start putting money into some kind of investment. So, I basically went onto USAA and blindly picked what sounded best. I tried to do some research but, I'll admit, I am completely confused as far as how exactly most investments work. Long story short, it was a toss up between a Roth IRA and a savings account with either USAA or ING. I looked at some charts showing how an IRA could pay off if we invest for like 20 years, so I went with that one. Over the last few months, I've watched the amount in the IRA fluctuate so much, mostly going down, which worries me. I know everyone says to just be patient and ride it out, so I have. Now I'm starting to wonder though, would it be best to continue putting most of our money into the IRA? Or would we be better off focusing mainly on tucking away as much as possible into our savings account? We've tried to do a little of both (a little in savings, but focusing mainly on IRA) and unfortunately, we can't afford to do a lot in both. So, I guess my question is which one should I be focusing on most? Do you think an IRA will really pay off more long term? We have no intentions of touching the money until we're well into retirement, so it's definitely a long term thing for us. However, I'm unsure whether the IRA will end up actually paying off more or, worse, actually putting us into a hole with no return 25 or 30 years from now? There is a sense of security by putting the money into savings, instead, where I know I'll get a certain percentage back. And I wanted to thank you, Rich, for taking the time to answer these questions so thoroughly. You're awesome and I really appreciate all of the advice you're able to offer us __________________

01-24-2009, 02:54 PM	#3 (permalink)
Brandi “If you want the last word, apologize.” Join Date: Jan 2004 Posts: 39,594 Blog Entries: 1 Classifieds: (3) Activity: 21% Longevity: 99%	I would love to have additional info! And thank you lefty for your response __________________

01-24-2009, 02:57 PM	#4 (permalink)
Anna*Banana Senior Member Join Date: Jan 2008 Location: FINALLY together in Philly :) Posts: 1,681 Classifieds: (0) Activity: 16% Longevity: 30%	I think you made the right choice with an IRA. You are exactly right, you can't look at the here and now. Its the overall picture that is important. In 25 to 30 years you WILL see an increase even if now you see a decrease. You made the right choice!!!! I'd continue to do research but for now I'd say you made the right choice. __________________ Anna and Matt Cardellino

01-24-2009, 03:30 PM	#5 (permalink)
DakotaCowgirl MilitarySOS Jewel Join Date: Feb 2007 Location: Here...going to Germany Posts: 7,729 Classifieds: (0) Activity: 58% Longevity: 47%	It all depends what you are looking for. If you are looking for something just for retirement, then an IRA split into different accounts is the way to go. I also recommend that you get a savings account and split it. This way, if you need money right away, you can have it. When my DH and I are out of debt (goal...3 years), we want to start up an high interest account to put money aside for a house payment, IRA, savings for the kids, and just future in general. This way, we are all covered. We already have a IRA going and put just a bit in; but, it is better then nothing. __________________ "It is endemic of the current culture that those with large stature are overlooked except by vultures. With no regard to the depth of their souls, the height of their passion, and the beauty of their moments." P.J. Pete http://www.thewomanhood.com/forum/register.php?referrerid=1498[/URL] MacGyver can make Chuck Norris out of duct tape and a spork.

01-24-2009, 09:11 PM	#6 (permalink)
hteew You may call me "Lippy" Join Date: Apr 2007 Location: Ft. Stewart Posts: 2,935 Classifieds: (0) Activity: 0% Longevity: 44%	I am doing both but put more into my IRA than my savings account. For me, the ING account is an emergency fund and is short-term growth. My IRA is long-term retirement and long-term growth. I may be wrong but it seems in my head that I will gain more over 30 years in my IRA just from inflation adjustments than my savings account. I have my IRA set up to invest based on my goal retirement age. So right now, my IRA is spread over some high risk stocks and a small amount of stable bonds. As I get closer to retirement it is automatically redistributed into lower risk stocks and bonds. I think you made the right choice. You may want to look at how your IRA funds are distributed. You can always move them into something that is less risk and as reliable as a savings account. __________________ I would like to be with my for a while but thats what made me so tired in the first place!

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01-24-2009, 09:16 PM	#7 (permalink)
Fidzy I have a crush on Gen. Clark Join Date: Dec 2007 Location: Me: Beantown / Him: Ft. Bragg, NC Posts: 11,828 Classifieds: (0) Activity: 38% Longevity: 33%	We use our savings for short-term and our IRA and other investments for long term. I try not to peak at our IRA because we lost more than 10% this year of its value. __________________

02-02-2009, 08:59 PM	#8 (permalink)
Rich Lunsford Junior Member Join Date: Aug 2008 Posts: 46 Classifieds: (0) Activity: 0% Longevity: 22%	Save or Invest. That is the question. It’s good to hear from you Brandi! Thanks for having me. It is a tough dilemma – take care of today (savings account), or take care of tomorrow (Roth IRA). First, make sure you do have (or will have soon), a substantial emergency fund savings of 3 to 6 months of living expenses that you have ready and immediate access to. This is your “financial readiness” account. You are ready for most financial emergencies that life can throw your way. Once you have the emergency fund, then long term or retirement investing becomes more feasible. If you have today protected (emergency fund), then you feel able to invest in the Roth IRA (which will likely fluctuate). The Roth IRA is probably invested in the stock market in some way. All mutual funds are a bit different. Although the stock market has its ups and downs, the average return in the market for long term investors is about 7 to 8% per year. But you don’t get 7 to 8% every year. Some years you may return 12%, another 20%, and still another -20%. It’s a rollercoaster sometimes and keep in mind, past performance is no guarantee of future results. The savings account is a positive return but typically only about 1 to 3% per year. If I want to keep pace with inflation and protect today, then the savings account is ideal; but if you want growth potential over time then you may want to consider a mutual fund.. As you’ve found the mutual fund Roth IRA can be painful, but try to stay focused on the 20 year horizon. Have faith in the future (Roth IRA) and protect today (savings account). The folks at USAA can help you make the right choice concerning your emergency fund and Roth IRA. Give them a call! Rich Lunsford is a CERTIFIED FINANCIAL PLANNERTM practitioner with USAA Financial Planning Services, one of the USAA family of companies. Rich holds the Series 7 and 66 securities licenses. Rich also holds the designations of Chartered Financial Consultant (ChFC®), Chartered Life Underwriter (CLU®), and CHARTERED RETIREMENT PLANNING COUNSELOR (CRPC®). Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements. __________________ Need some money advice? USAA’s Rich Lunsford is here to help. Whether its investment advice, mortgages, college finances or deployments, he’s your money coach for any question you may have so just “Ask Rich!” Click here to submit your question to CERTIFIED FINANCIAL PLANNER™ Rich Lunsford or participate in the discussion.

02-09-2009, 08:08 PM	#9 (permalink)
Shep's Wife Senior Member Join Date: Mar 2006 Posts: 7,921 Classifieds: (0) Activity: 6% Longevity: 62%	Our IRA account has been very painful this past year. We started ours back in 2000 and when we got our end of year statement in January I felt sick to my stomach. Now I'm stuck and don't know what to do. I don't want to lose anymore money but I don't want it just sitting in the bank account.