Banks offer a wide range of accounts and financial services that enable Americans to conduct everyday transactions, obtain necessary loans such as mortgages, and invest their money to achieve long-term wealth.
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While not every bank is right for every customer—and some charge fees that can eat into your returns—when used correctly, banks can be a great tool for building wealth. Here are some ways they can help you.
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High-interest savings accounts
Banks have always been a place where customers could invest their money and keep it safe in a savings account insured by the Federal Deposit Insurance Corporation.
However, with the rise of online banking, high-yield savings accounts dominate the banking landscape, offering returns many times higher than those of traditional savings accounts. And while online banks are still the go-to place for high-yield savings accounts, which can yield returns of 5% or more in the current environment, traditional banks have caught on and many now offer their own accounts.
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Investment opportunities
While high-yield savings accounts can be a great place to put money in the short term, such as emergency funds or the down payment on a new home, they are not designed to build long-term wealth. This is especially true in a declining interest rate environment, which we seem to be heading into in 2025. In such an environment, the returns these accounts offer will actually decline. Fortunately, most banks offer long-term investment options specifically designed to build lifetime wealth.
Banks offer different investment options, so you’ll need to shop around to find the one that best fits your needs. Some may only offer certificates of deposit (CDs) or short-term bonds, while others offer full-fledged investment services with a licensed financial representative.
These types of banks offer access to investments ranging from stocks and mutual funds to more exotic asset classes like commodities, options, cryptocurrencies and more. More and more banks today offer robo-advisory services that charge very low fees and use algorithms to build portfolios of funds and/or exchange-traded funds (ETFs) that match an investor’s goals and risk tolerance.
All of these investment options have their own risk-reward profiles, and you’ll need to choose carefully to make the best decisions for your portfolio. But even a simple S&P 500 index fund, for example, has historically returned about 10% per year, which is enough to double your money every seven years on average.
Mortgages
Opportunities for building wealth at banks are not limited to savings accounts and investments. Prudent investors can also use certain types of loans to build long-term wealth—particularly mortgages.
Most major banks and even most credit unions offer mortgage loans to their customers. While credit is a burden and may not seem like a way to build wealth, the truth is that homeownership has been a major factor in the prosperity of American households since the end of World War II, Chris Herbert, executive director of the Joint Center for Housing Studies at Harvard University, told NPR. In fact, the Pew Research Center finds that the most valuable asset in most American households is their home.
For this reason, access to a mortgage from a bank is one of the best ways for most Americans to build long-term wealth.
Retirement accounts
In addition to regular investment accounts, most banks offer retirement savings accounts in the form of traditional and Roth IRAs. For investors who don’t have access to a workplace 401(k) plan, IRAs can be one of the best options for tax-advantaged retirement investments. This is because of their numerous tax benefits.
With a traditional IRA, most investors can deduct the amount of their contributions from their taxes. Investments grow tax-free until they are withdrawn, at which point they are subject to ordinary income taxes.
With a Roth IRA, contributions are made after-tax, meaning investors can’t deduct them from taxes. However, the money in the account grows tax-free, and qualified withdrawals — typically those made after age 59½ — are also tax-free.
Both accounts offer investors the opportunity to grow their portfolio over time without being burdened by taxes.
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This article originally appeared on GOBankingRates.com: Maximize Your Savings: How Banks Can Help You Build Wealth
