VOO vs Savings Account For Kids
Many parents keep money for their child in a savings account because it feels safe and familiar.
A savings account can be useful for short-term money. But if your child has many years before needing the money, investing may offer more long-term growth potential.
What Is VOO?
VOO is the Vanguard S&P 500 ETF. It is an investment fund that tracks the S&P 500, which includes many of the largest companies in the United States.
Parents often look at VOO because it is simple, diversified, and low cost. Instead of trying to pick one winning company, VOO gives investors exposure to hundreds of large U.S. companies.
What Is A Savings Account?
A savings account is a bank account that earns interest. Savings accounts are usually simple, stable, and FDIC-insured when held at an FDIC-insured bank.
The benefit is safety. The downside is that the long-term growth potential is usually lower than investing.
The Main Difference: Safety vs Growth
A savings account is designed to protect money and earn interest.
VOO is an investment. It can go up and down in value, sometimes sharply. But over long periods of time, stock market investments have historically offered more growth potential than cash savings.
Money your child may need soon should usually be kept safer. Money your child will not need for many years may have more time to benefit from investing.
Example: $100 Per Month For 18 Years
Let’s compare three simple examples. These are hypothetical and not guaranteed.
| Option | Example Return | Potential Value After 18 Years |
|---|---|---|
| Traditional Savings Account | 2% | About $26,000 |
| High-Yield Savings Example | 4% | About $32,000 |
| VOO Investment Example | 8% | About $48,000 |
A savings account may provide stability, but investing in a low-cost index fund may offer much more long-term growth potential when your child has many years before needing the money.
Why Savings Can Fall Flat Over Time
Savings accounts are helpful because the balance usually does not bounce around like the stock market.
But over 10, 15, or 18 years, low interest can create a different problem: the money may not grow enough to keep up with future goals.
That is why parents should think about the purpose of the money. Is it for a short-term need, or is it for a long-term future opportunity?
When A Savings Account May Be Better
A savings account may make sense for:
- Emergency money
- Money needed in the next few years
- Short-term child expenses
- Parents who do not want market risk
When VOO May Make Sense
VOO or another broad index fund may make sense when:
- Your child is young
- The money will not be needed for many years
- You are comfortable with market ups and downs
- You want more long-term growth potential
- You want a simple diversified investment
Important Risk To Understand
VOO is not a savings account. It is an investment.
The value can drop. Some years may be negative. If you need the money soon, a market drop could happen at the wrong time.
That is why investing is usually better suited for longer time periods.
The Bottom Line
A savings account offers stability. VOO offers growth potential.
For money needed soon, savings may be the safer choice. But for money that can stay invested for many years, a low-cost index fund like VOO may help create more opportunity for your child over time.
See What Your Child's Future Could Look Like
Want to see how small monthly investments could grow for your child? Try the Child Wealth Calculator and download the free Child Wealth Guide.
Try The CalculatorThis article is for educational purposes only and should not be considered financial, tax, or investment advice. Investing involves risk, including the possible loss of principal. VOO is used only as an example of a broad S&P 500 ETF.