Eight Straightforward Exchange-Traded Funds (ETFs) as Alternatives to Traditional Savings Accounts

Investing doesn't have to be a headache, but often it can seem that way. The real goal for most folks is to grow their dollars as much as possible. Traditional stash spots like savings accounts or certificates of deposit (CDs) might seem safe, but they often struggle to keep pace with inflation, causing your hard-earned cash to actually lose value over time. Take savings accounts, for example. Inflation rates were at 2.4% for the past year as of May 2025, while many savings accounts only offer 1% interest. That means you're losing around 1.4% of your purchasing power each year!

So, it's no surprise that many investors turn to exchange-traded funds (ETFs) as an alternative to these traditional savings vehicles. ETFs work by pooling money from several investors to buy a collection of investments, such as stocks, bonds, or other assets. The cool thing is that you can find ETFs that provide more stability than you're used to while still offering a higher rate of return than savings accounts. Here are eight ETFs that fit the bill.

Using Exchange-Traded Funds (ETFs) To Save

ETFs have revolutionized the investing game. They allow you to buy shares of a basket of stocks, bonds, or other investments through major exchanges, giving you ownership of a part of these investments. Americans have caught onto these investment tools in a big way - as of March 2025, there were over 4,000 U.S.-based ETFs managing trillions of dollars in assets[2].

While ETFs generally carry more risk than savings accounts (meaning your investment could decline in value), many ETFs are designed to be less risky than buying individual stocks by spreading your money across various investments. This way, if any of the investments perform poorly, the losses from others can potentially make up for it.

For people who don't need their money immediately, these investment tools might be a better choice than traditional savings accounts or CDs for building long-term wealth. Here's what you need to know about four main types of ETFs:

Index ETFs

Index ETFs follow a large market index. In other words, when you hear the news that the market is up today, that means your ETF should be up as well, though you'll want to keep an eye on which index your ETF is connected to.

These funds are also called "passive" because the managers don't have to pick any stocks; they follow the index the fund is intended to track. Today, index ETFs can be found for almost every type of index, from broad market indexes like the Dow to specialized ones that focus on sectors and regions.

Bond ETFs

Bond ETFs focus on more stable investments, like government bonds. They're a good choice for those who want to invest but are cautious about the stock market's ups and downs.

Sector ETFs

Sector ETFs target specific parts of the economy, such as technology, healthcare, or finance. They're riskier than broad market ETFs since your money isn't spread across different industries. However, they can be beneficial for investors who believe that certain sectors are poised for success.

Money Market ETFs

Money market ETFs hold short-term government bonds, similar to bank money market funds. They're a more stable choice than other types of ETFs but offer lower returns in return.

Many easier-to-understand ETFs within these groups have often outperformed inflation[1]. To get even higher returns, you'll need to take on more risk, but many ETFs offer much lower risk than individual stocks.

ETFs vs. Savings Accounts

Before you dump all your savings into an ETF, it's essential to understand the differences between the two:

What Your Money Buys

Savings account: Your money stays as cash, just like having it in your checking account but earning some interest. The interest might be at a fixed rate or change over time.
ETFs: Your money buys pieces of investments like stocks or bonds that can grow (or shrink) in value.

How Safe Your Money Is

Savings account: Up to $250,000 is insured by the government-you can't lose your original deposit if it's under that amount.
ETFs: No government insurance-the value goes up or down based on market performance.

Getting Your Money When You Need It

Savings account: Usually available anytime, although some banks limit monthly withdrawals on certain types of savings accounts.
ETFs: Can be sold when stock exchanges are open, but you might have to sell for less than you paid if the markets are down.

Important

You can lose money when investing in an ETF. If you're planning a major purchase soon or need the money soon, you might want to reconsider investing in an ETF at this time. However, many ETFs can be sold quickly to get your money in and out of your brokerage account relatively fast.

What You Can Earn

Savings account: Generally a fixed interest rate, although it's usually lower than ETF returns.
ETFs: Potential for higher returns through investment gains and dividends, but no guarantees.[4][5][6]

Tax Considerations

Savings account: The interest earned is taxable each year.[5]
ETFs: Tax implications vary. You may owe taxes on any dividends received and gains when you sell (if you sell the ETF shares for more than you originally paid).[4][5][6]

Final Thoughts

While ETFs and savings accounts serve different purposes, there's no need to choose between the two. A mix of both can help you build long-term wealth while keeping some money easily accessible for emergencies or short-term goals. It's all about finding the right balance for your personal financial situation.

And remember, investing always comes with some level of risk, so it's crucial to do your research and choose ETFs that align with your investment goals and risk tolerance.

References:1. ETFs for Common Folk (accessed May 31, 2025)2. The Evolution of the ETF Nation (accessed May 31, 2025)3. How Safe Are My ETFs? (accessed May 31, 2025)4. What's the Difference Between a Savings Account and an ETF? (accessed May 31, 2025)5. Investing in the Stock Market: A Beginner's Guide (accessed May 31, 2025)6. Understanding ETFs: A Comprehensive Guide (accessed May 31, 2025)

Enrichment Data:In addition to the base article, this revised version incorporated insights from the enrichment data to provide context on the differences between ETFs and savings accounts, explaining how ETFs can be more risky but potentially offer higher returns, and discussing the tax implications and government insurance of savings accounts compared to ETFs. Furthermore, the revised version provided a brief explanation of the evolution and popularity of ETFs in the U.S. market and the role of index funds in the overall ETF landscape.

Trading cryptocurrency presents another avenue for growth, as some investors have found success in Initial Coin Offerings (ICOs) and trading tokens. However, this approach carries more risk than traditional investing methods, requiring careful regulation and forethought.

If you're looking for a stable and higher rate of return compared to traditional finance vehicles like savings accounts or certificates of deposit (CDs), considering diversifying your portfolio with crypto-based Exchange-Traded Funds (ETFs) may be a wise choice. These ETFs work similarly to their traditional counterparts, but they pool money to invest in various cryptocurrencies instead of stocks, bonds, or other assets.

As the crypto market continues to grow and evolve, taking advantage of innovative financial instruments such as ETFs could help you capitalize on new opportunities while minimizing risk through diversification. However, before investing in any ETF or token, it's crucial to thoroughly research the underlying assets and understand the associated risks.