2 Best Ways To Invest $1 a Day — and What It Can Grow To
Written by
John Csiszar
Edited by
Levi Leidy
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If you can invest consistently over the long run — and you start at an early age — you might be surprised at how little you actually have to set aside to generate sizable long-term gains. While setting aside $1 per day won’t make you a millionaire, you might be surprised at how big your account can grow over time with even that small amount of savings.
Here’s a look at how large you can grow your account by setting aside $1 per day into both a high-yield savings account and an S&P 500 stock index fund, along with a discussion of how you can boost your savings even more.
High-Yield Savings Account
Probably the easiest way to save and invest $1 per day is to use a high-yield savings account. You can automate transfers from your checking account or another institution into your high-yield savings account to make sure you never miss a contribution.
While you won’t get rich by using a high-yield savings account, it’s a much better home for your short-term money than a traditional, brick-and-mortar bank account. According to the Fed, the average interest rate on a savings account as of September 2024 is just 0.46%. But even with the recent cut in interest rates, some high-yield savings accounts are paying 5% or more.
If you were to invest $1 per day into a high-yield savings account paying 5%, after one year, the $365 you contributed would be worth $374.25. That may not sound like much, but if you invested it at the average 0.46% rate instead, it would only be worth $365.84.
The difference becomes much clearer over a 10-year period. At that point, you would have contributed $3,650 to your high-yield savings account, but your balance would be up to $4,738.55.
Over 40 years, you’ll see a more dramatic result. The $14,600 you invest would grow to $46,706.65. With a traditional savings account, your balance would only grow to $16,041.43, a $30,000 shortfall.
Stock Market
Although a high-yield savings account will grow your money much faster than a traditional savings account, it should really only be used for short-term money that you need to keep safe. For example, if you are saving a down payment for a house or building an emergency fund, the safety and security of a high-yield savings account is paramount. But if you’re looking to generate real long-term wealth over the course of your lifetime — such as in your retirement account — the stock market is generally a better option. This is because the long-term average return of the S&P 500 is about 10%, and it has never lost money over any 20-year rolling period.
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If you invest $1 per day for 10 years in the stock market and earn that 10% average annual return, your $3,650 would turn into $6,275.81. Over a 40-year period, the effects of compounding would be even more dramatic. The $14,600 you invest over 40 years would grow to $196,070.46.
How To Build Your Savings Even More
While the returns of the stock market in the above example are impressive, it will take more than $196,070.46 for most seniors to enjoy a happy retirement. But it’s important to remember that this example only shows the results if you invest $1 per day, or roughly $30 per month. You can easily overcome this retirement shortfall by simply investing more — and perhaps not as much as you might think.
If you have a 40-year window to invest for retirement, you can reach $1 million in savings by investing just $159 per month, if you can earn a 10% average annual return. That’s just a bit over $1,900 per year, or a little over $5 per day.
In a high-yield savings account, you’d have to amp up your savings rate by a lot more — but you wouldn’t be taking any financial risk along the way. To earn $1 million over 40 years while earning 5% a year, you’d need to set aside closer to $655 per month.
It’s important to note that any investment carries risks and that no returns are guaranteed. The stock market, for example, can be very volatile over the short term, and it rarely returns the “average” 10% in a given year. Savings accounts are protected by FDIC insurance, but the rate they pay will fluctuate based on current market rates — and as the Fed is currently starting a rate-cut cycle, there likely won’t be any 5% high-yield savings accounts available in the near future.
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