What Are the Advantages & Disadvantages of Investing $1,000 in a Checking Account?
- You can open a checking account with as little as $50, whereas in many instances you need $5,000 or more to invest in a certificate of deposit, fixed annuity or similar interest bearing investment account. You can open a money market savings account with a small deposit but many banks require that you maintain an average daily balance of at least $5,000 or $10,000 to avoid a monthly service fee. If you invest $1,000 in a money market, then the monthly fee would wipe out your interest. Therefore, checking accounts are a good alternative although you normally have to have at least $1,000 in your account to earn interest, whereas you can deposit less in a basic savings and earn interest without having to pay a monthly service fee.
- When you deposit $1,000 into a checking account, you do not have to worry about that investment fluctuating in value. Even if your bank becomes insolvent, the Federal Deposit Insurance Corporation protects your investment. If you invest $1,000 in a mutual fund or stocks, you could lose your entire investment during a market downturn. However, other bank products including savings accounts are also federally insured, so if you are truly investing and do not plan to spend the money, you could earn more and keep your funds safe in a basic savings.
- Typically, when people invest, they plan to commit their money to a particular account for a number of years or at least several months. Nevertheless, plans can change, and in the event of an emergency you can easily withdraw your funds from your checking without encountering any kind of delay and without having to pay a penalty. Savings accounts and money markets allow for monthly withdrawals, but these are limited to six a month, so checking accounts are the best place to stow money that you want easy access to.
- In banking and in the investment world in general, long-term commitments are rewarded with high interest rates. Since checking accounts are highly liquid, the returns on a checking accounts are minimal. However, a 2009 report in Bloomberg found that over a 29-year period dating back to 1980 funds held in interest-bearing checking accounts grew at a faster rate than gold. Nevertheless, over long periods of time you can earn more by investing in almost any other kind of instrument. So if you are mainly concerned with maximizing your returns, do not invest in a checking account.
