This common money move may 'feel safe,' but it can be a silent wealth killer—what to do instead, from an investing expert

Keeping too much of your savings in cash — whether that's under your mattress or in a non-interest-yielding bank account — could be silently killing your wealth-building potential, financial experts at investment management firm Vanguard say.

That's because inflation eats away at the spending power of your cash over time. For example, $126 would go about as far in 2026 as $100 did in 2020, according to Bureau of Labor Statistics data. 

Traditional savings accounts earn an average interest rate of just 0.39% per year, according to the Federal Deposit Insurance Corporation. Meanwhile, the overall inflation rate was about 2.4% in January 2026, BLS data shows.

Some high-yield savings accounts can help your cash earn up to 4% in interest per year, according to Bankrate, but most people earn far less. Over half of Americans say their savings earn less than 3% in interest, a Vanguard survey of over 1,000 adults found in January 2025. Nearly a quarter of respondents say their savings earn less than 1% in interest.

"I think the reason why people hold on to extra cash is it can feel safe. But it can also quietly erode progress that investors are making towards meeting their long-term financial goals," says Kathy Kellert, head of index equity product at Vanguard.

Investing your cash in the market can help you outpace inflation and retain your purchasing power. The S&P 500 index, a benchmark for the broad U.S. stock market, has delivered an average annual return of around 13% from 1976 through 2025, according to CNBC analysis.

"While [cash] provides stability and liquidity, it rarely keeps pace with longer-term investments, which means savers may fall behind on building real wealth," Jordan Gilberti, a certified financial planner and founder of Sage Wealth Group, says.

Say you put $1,000 in a savings account earning the national average of 0.39% annually. After 10 years, your account would be worth about $1,040, assuming you made no additional contributions. However, after accounting for a 2.5% annual rate of inflation, your cash would be worth around $812 in today's dollars, according to CNBC Make It calculations.

Now say you were to invest $1,000 in the market, earning a 10% annual return. After 10 years, your investment would be worth about $2,594. Even after accounting for a 2.5% annual rate of inflation, that would still come to around $2,026 in today's dollars.

"Cash absolutely has a role in a financial plan, primarily for short-term needs and emergency reserves, but it is not designed to drive long-term growth," Gilberti says. "Allocating too much [of your savings] to cash can create a false sense of security while quietly eroding future buying power."

Kellert recommends investing as early as possible because it gives your money more time to benefit from compounding, which occurs when the returns of your initial investment are added to your principal and interest grows on both, multiplying your money. 

To get started, Kellert recommends investing in index funds pegged to the S&P 500 because they offer broad exposure in the market and reliable returns. Index funds also typically have lower fees than actively-managed portfolios, meaning "more money stays invested in the market," she says.

However, there are good reasons to keep some of your money in cash, including for day-to-day spending and emergency savings. 

The amount you need for both depends on your personal financial situation, but experts, including Kellert and Gilberti, recommend aiming to save enough to cover three to six months' worth of expenses in your emergency savings fund.

"It's really down to personal preference as to how conservative within that spectrum or how much buffer you want," Kellert says.

Kellert also recommends thinking about two different "buckets" for your emergency savings: one for "spending shocks" like a car or home appliance repair and one for "income shocks" like losing your job or needing to take unpaid time off work.

It may be difficult to stash away six months' worth of expenses, especially if you're struggling to cover your everyday costs. But "every little bit helps," Kellert says.

She recommends setting up automatic contributions to help you build a good savings habit and using a high-yield savings account to "at least help you keep pace with inflation."

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