Did you know that you’d only earn about $8 in interest if you put $1,000 in a savings account for 10 years? The national average interest rate for savings accounts is a measly 0.08%, which is a drop in the bucket compared to the potential returns you could get if you invested that money instead of leaving it in a regular savings account.
Of course, the next option – Certificate of Deposit – isn’t much better, with current rates hovering around 1-2% for 24-48 month terms ($40 in interest for a $1,000 CD at 24 months or $82 for the same amount at 48 months). Savings accounts are good for having easily accessible cash in case of emergencies and CDs are useful for stable growth at a guaranteed rate of return, but neither of these options is ideal for maximizing your returns on investments.
Rather than letting $1,000 languish in a low-interest savings account, here are some financially savvy alternatives to consider where to invest 1000.
Invest the Money
There are so many ways to get 7-8% or even 10% returns on investment by strategically placing your spare $1,000 in an investment account. For instance, you could invest with Betterment by opening an account (general investing, everyday savings, dedicated fund for one of your long-term financial goals, etc.) and letting the advanced investing algorithm determine how to optimally allocate your cash between various stocks, bonds, mutual funds, and ETFs. Betterment charges just 0.25% annually to manage your account; no costly hidden fees or surprise fee hikes with this personalized robo-advisor platform.
You could also invest in individual stocks with M1 Finance. Unlike most online investment services, M1 doesn’t charge any account management fees or commissions; they make their money through interest on margin accounts and cash reserves so individual investors can enjoy their service free-of-charge. Why would you waste $5-10 or more on account management and/or brokerage fees to invest your $1,000 when you can put every penny towards your new investment fund instead?
If you’re wary of investing in individual stocks or you simply want more diversity for your portfolio, another good option is Stash Invest, which requires just $5 to start investing in a variety of ETFs that align with your personal investment goals and lifestyle. For example, an eco-conscious investor could select environmentally friendly companies and green tech manufacturers. Stash Invest costs just $1 per month for accounts with balances lower than $5,000 (otherwise it’s a 0.25% annual account management fee), which makes it a low-cost and beginner-friendly option for investors who want access to more than just individual stocks.
Finally, did you know you can get involved in commercial real estate investments for as little as $500? Fundrise was designed to help everyday investors access the lucrative commercial real estate market through lowered entry barriers ($500 or $1,000 for an “advanced portfolio”) and low management fees. Several properties owned by Fundrise and its investors have produced annual gains in excess of 10-12%, so this is an ideal option for people seeking higher returns on their investments and greater diversification for their portfolios.
The newest robo-advisor on the market called M1 Finance gives the more established, sophisticated investors great investing options. M1 Finance simplifies the investment process for beginning and experienced investors alike. Unlike other robo-advisors, M1 Finance does not charge a fee, and it gives you the option of taking more control over your investments if you want them (and less if you don’t).
Consider a Life Insurance Plan
Even if you already have life insurance through your employer, it likely isn’t enough to cover your expenses and financially protect your loved ones in case you unexpectedly pass away. Many financial professionals recommend you have life insurance coverage worth at least 8-10X your annual salary, while most employer-provided life insurance plans cover maybe 1-3X your annual salary.
With this in mind, putting that extra $1,000 into your own life insurance plan could be worthwhile, as long as you choose a reputable insurance company and get the personalized coverage and amounts you need for your living situation. Haven Life is renowned for offering exceptional term life insurance policies online, with the added bonus of being able to determine whether you’re approved within minutes instead of having to wait for multiple medical exams and lab tests to be processed.
Prior to taking out a new life insurance policy, be sure to conduct some research beforehand. Should you get term or whole life insurance? $500,000 or $1,000,000 coverage? Exam or no exam? 20 years or 30 years? Ensuring you know exactly what you need before contacting insurance agents is important if you want to avoid being overcharged or oversold something you don’t want or need.
Pay Off Debts
A final thing you can do with a spare $1,000 is paying off debts. If you have student loans, an extra $1,000 payment can potentially shave 2-4 months off your payment timeline. If you have a mortgage, an extra payment of $1,000 may not reduce your pay-off timeline, but it could help you save money on interest and build equity while you’re at it (which is even more important if you’re currently paying PMI).
If you have credit card debt then it would be a no-brainer to put the extra $1,000 towards that debt, especially if the interest rate is 10% or higher. Think about it: you earn $8 in interest over a decade for a $1,000 deposit in a regular savings account, right? For a $1,000 balance on a credit card with a 20% interest rate, you’ll pay over $200 in interest in just 25 months if you keep up with $50 minimum payments, rather than paying off the $1,000 balance entirely in one swing.
Recap: What to Do with a Spare $1,000
Don’t let your money go to waste in a regular savings account. There are so many better ways to make your money work for you and actually keep up with inflation (leaving money in a savings account actually decreases the value of it, when you compare interest rates and inflation rates).
Whether you decide to invest the money with a robo-advisor, take out another life insurance policy and/or pay off debts, you’re sure to get more bang for your buck than if you left it alone in a low-interest savings account or CD.