Tax Impact on Returns
In the US, both savings interest and investment gains are subject to taxes. VNIT's tool calculates after-tax returns to show you the real difference.
- Savings interest is taxed as ordinary income (typically 22-24% for middle income earners)
- Long-term capital gains from investments are taxed at a lower rate (typically 15% for most taxpayers)
Understanding Investment Options (Based on Presets)
The tool provides 3 common scenarios in the US market to help you visualize:
🛡️ Conservative (HYSA + Bonds)
Keep money in high-yield savings accounts and bonds. Very low risk. Lower returns (around 4-5%), typically just enough to keep pace with inflation.
⚖️ Moderate
Invest in S&P 500 index funds or balanced ETFs. Average returns of 8-9%. Low to moderate risk, suitable for medium-term accumulation.
🚀 Aggressive
Invest in growth stocks or tech ETFs. Expected returns of 12-15% per year. High short-term volatility, but king in the long run.
The Cost of Being 'Too Safe'
Look at the blue 'Difference' box. That's the Opportunity Cost.
If you're young (25-35 years old), keeping all your money in savings for 20 years could cause you to 'lose' hundreds of thousands of dollars compared to investing in growth channels.
Advice: Allocate a portion of your idle money to investments today. Even with just a 3-4% interest rate difference, over 10 years, compound interest will create a huge gap.
Check Your Personal Inflation Rate
Frequently Asked Questions
Should I keep money in savings or invest in stocks?
Depends on your risk tolerance and time horizon. Savings accounts are suitable for emergency funds and short-term goals (< 3 years). Investing (Stocks, ETFs) is suitable for long-term goals (> 5 years) to take advantage of higher compound interest and beat inflation.
How do taxes affect my investment returns?
In the US, savings interest is taxed as ordinary income (typically 22-24%), while long-term capital gains from investments are taxed at a lower rate (typically 15%). After-tax returns can make a significant difference in the long run. VNIT's tool calculates both scenarios to show you the real difference.
What is opportunity cost in investing?
Opportunity cost is the profit you miss when choosing one option over another. For example: If you choose savings (interest $10k) instead of investing (gain $20k), your opportunity cost is $10,000. The 'Difference' section in VNIT's tool is exactly this number.