When it comes to growing your savings, the interest rate you earn can make a significant difference. Let’s compare the interest paid by my bank and a target date bond fund to see how they stack up. 

My Bank: 0.02% APY

My bank offers an annual percentage yield (APY) of just 0.02%. This rate is typical for many traditional savings accounts, which prioritize security and liquidity over high returns. While your money is safe and easily accessible, the growth is minimal. For example, if you deposit $10,000, you would earn only $2 in interest over a year.

Target Date Bond Fund: 4.21% APY

One target date bond fund offers a much higher APY of 4.21%. These funds are designed to provide a mix of bonds that gradually become more conservative as the target date approaches. 

With a 4.21% APY, the same $10,000 investment would yield $421 in interest over a year, significantly outpacing the returns from a traditional savings account. Wouldn’t you like to earn over 200X as much interest as your bank savings account pays?

The Bottom Line

Choosing between a traditional savings account and a target date bond fund depends on your financial goals and risk tolerance. If you prioritize safety and liquidity, the bank’s savings account might be suitable. 

However, if you’re looking for higher returns and are comfortable with some level of risk, a target date bond fund could be a better option. 

Keep in mind the target date bond fund I used in this example holds only US Treasury bonds, widely considered the safest investment in the world.

Explore Your Options

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