UNest 101: The Difference Between Savings Accounts and Investment Accounts

 

What is a savings account?

A savings account is an interest-bearing deposit account held at a bank or credit union. Savings accounts typically pay a minimal interest rate, but their safety and reliability make them a good option for stashing cash that you want available for short-term needs. They are not a great way to save for your children’s future because the interest accrued is not meaningful. For example. If you deposit $100 a month in a savings account that accrues 1% annual interest every month from your child’s birth until they are 18 you will have $23,196. If you use choose to invest the funds in a UNest Investment account over that same time that earns 8% you may have $46,665!*

 

What is an Investment Account?

The term Investment Account refers to a type of financial account that contains a deposit of funds and/or securities that is held at a financial institution. The typical objectives of an Investment Account are to achieve long term growth, income or capital preservation. Investment accounts do provide higher returns on average and have more risk associated with them but over long periods of time that risk may be  reduced by making consistent investments. 

 

Investment Account Example

For example, an Investment Account is useful for a parent to set buy like stocks and bonds aside to provide them with the funds they need to pay for their children’s college, first home, wedding etc. In general, the purpose of opening and operating most Investment Accounts is usually based upon longer term financial planning goals.

 

Why does the value of money we saved in UNest fluctuate?

Your child’s UNest Investment Account invests your money in various investment grade instruments called ETF’s (Exchange Traded Funds). ETF’s commonly track indexes (groups of stocks that collectively reduce risk) but can also track other assets. 

At UNest, we take pride in placing your child’s funds in low-risk investment vehicles like ETF’s that may provide strong returns over time. As with all investments, it is best to take a long-term approach and not pay too much attention if the market takes a short-term dip. In fact, the world’s best investors look at these moments as buying opportunities because stocks are effectively on sale!. If you select our age-based portfolios, As your child grows older, your UNest account will adjust to a portfolio that is even more risk-averse to avoid fluctuations. 

If you invest $10 a day from birth, considering a 7% average annual market return, you could have more than $140,000 by the time the child turns 18! *.

Every UNest account has a portfolio made up of ETFs, tailored to your goals and objectives. Your child’s portfolio changes as they grow older and per market movements. As the portfolio value fluctuates, the dollars represented in your UNest account will also fluctuate. As long as you continue investing basis, consistently you may  see your child’s account rise overtime. If the account rises 5% this is  a far higher rate than a traditional savings account.

What are the Advantages of my UNest Account? 

Another tremendous advantage of UNest Account is the flexibility. Since your UNest Account can be used for a wide array of expenses, you can use the money in the account even if your child chooses not to go to college. While earnings do not grow completely tax-free like in a 529 plan, earnings in a UNest Account are tax-advantaged, but differently.

A parent may choose to include their child’s unearned income with their tax return. Unearned income is money that doesn’t come from an employer. In 2020, the first $1,100 of a child’s unearned income can be claimed on the guardians’ tax return tax-free, and the next $1,100 is taxed at the child’s tax rate.  Most of the time, this rate is lower than their parent’s.

If you’re looking to save money or transfer assets to your kids for various expenses beyond education, a UNest Account can make a lot of sense. Unlike a 529 plan, where you can transfer the money in an account to a sibling or other beneficiary, with a UNest Account, any funds must be used or distributed by the time the child reaches their age of majority or their state’s maximum age for custodial accounts. Just remember that changes in the dollar amount of your account are normal and to keep a long view perspective. We are here to help ensure you and your child achieve their dreams! 

 

      • **This is a hypothetical situation. Past performance does not guarantee future results

Disclosure

College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the collegeboard.org. Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.