Millennials Prefer Savings Accounts Despite Low Savings Rates

An interesting report was released showing Millennials favor savings accounts over investing in stocks, despite currently low savings rates. Apparently Millennials, born between 1977 and 1999, are risk-averse to stocks because they came of age during the financial crisis and watched stocks fall more than 50 percent in 2008, the largest decline since the Great Depression.

Millennials are already worried about retirement, which is a good thing. A report from TDAmeritrade showed almost 45 percent of Millennials are worried that Social Security won't be there when they retire. This is up from 39 percent who said this last year.

The same report showed 47 percent believe a savings account is the best way to save for retirement. Unfortunately, stashing money into savings accounts your entire life in all likelihood won't be enough for retirement. A combination of saving and investing is the best course of action, not only for retirement but for other goals in life.

Eliminating equities from your retirement portfolio, especially at a young age, is a big mistake. Over time investing in equities has outperformed all other types of investments. Millennials are also young enough to withstand big declines in equities. In other words, they have enough time to recover from any major setbacks in the markets.

Another point in favor of investing in equities as opposed to deposit accounts is that savings rates, CD rates and money market rates are usually slightly above the prevailing inflation rate. In fact, for the past several years, returns on deposit accounts were actually lower than the inflation rate.

You can check on current savings rates on our rate tables here: Best Savings Rates.