Essence: Is Your Money Working Hand Enough for You?

Why a savings account is one of the stingiest places to keep your cash--and other money secrets that might surprise you

Frivolous spending once in a while probably won't put a squeeze on your funds. But if you habitually play away your money rather than saving and investing so that your cash works hard, you're rolling into negative economics--economic activity that produces negative, zero or below-optimal returns. In other words, sister, you're squandering your wealth-building potential!

Let's say your money is lounging in a low-yielding, federally insured savings account. Sure, it's secure, but it's only earning 1, 2 or 3 percent annually. It could be working more productively in investments that offer fatter returns--like mutual funds, stocks and bonds. Despite the nail-biting highs and lows of late, stocks have continued to outperform all other investments over the long haul. And as an owner of stock, you hold a piece of the company you invest in and can participate in annual stockholders' meetings. U.S. Treasury securities, including bonds, bills and notes, can be a lower-risk option. They mature at varying intervals, usually one to ten years or longer, and have a minimum purchase amount that generally depends on the date of maturity.

If you argue that investing in the stock market is as much of a gamble as playing the lotto, consider this: State-sponsored gambling is little more than voluntary taxation (a tax on cupidity), generally paid by those who can least afford it. In addition, with the multimillion-to-one odds of winning a jackpot, your chance D of walking away with a goose egg instead of a golden egg is 99.9 percent.

And here's another news flash: You're just letting your money out for recess when you join a sous-sous, which is an informal savings pool in which each group member contributes a set amount and takes turns getting the pot. At the end of the cycle, if all goes well, you might have received a needed lump sum from your savings circle--but you will not have received a cent more than you put in!

To help you kick impoverishing financial habits, ESSENCE, asked Patricia Martin, a New York-based investment consultant, for a heads up on the annual return you might get investing $1,000.

NINE PLACES YOU COULD STASH YOUR CASH

Where You Could Invest $1,000:       Attractive Option for Those Who:

Stocks                              Have high-risk tolerance, time
Shares in the ownership of a         to research financial
 corporation, giving the             performances of various
 shareholder a claim on the          companies or find an expert who
 company's earnings and assets       will, and the patience to allow
                                     investments to ride the market's
                                     highs and lows

Mutual Fund                         Want diversification of investment
A fund in which a company spreads    with less risk than stocks and
 its investors' money across         prefer that professional money
 several securities or               managers handle investment
 corporations                        dollars

Bonds                               Want a long-term investment with
Interest-bearing government or       fairly stable returns and like
 corporate IOUs that may pay         making smaller cash outlays,
 interest at specific intervals      such as that for zero coupon
 and repay the principal at          bonds, which are sold at deep
 maturity                            discount but pay full face value
                                     at maturity

Money Market Deposit Account        Enjoy the security of knowing
 Bank account that yields            money is insured by FDIC
 higher-than-average interest        (Federal Deposit Insurance
 rates, allows check-writing         Corporation), want more perks
 privileges and levies no penalty    than regular bank accounts
 for withdrawals                     offer and prefer to keep
                                     capital accessible

Certificate of Deposit (CD)         Don't mind locking up money for
Contract with a bank in which        various time periods (such as
 you agree to deposit a set          six months, a year or 18 months)
 amount for a set period of time     and want a higher interest rate
 for a fixed rate of interest        than that of a savings account

Savings Account                     Haven't yet realized that their
Bank deposit account that pays       money could be working much
 low interest                        harder if invested in almost any
                                     other way

Sous-sous                           Want to operate outside formal
Informal weekly or monthly           banking system; find it
 savings club in which members       difficult to save and invest on
 pool their funds, then take         their own; enjoy receiving an
 turns receiving the money pot       occasional lump sum of cash

Under Your Mattress                 Don't trust the financial system
                                     and want to keep money close at
                                     hand

Lottery and the Numbers             Say, "My ship is coming in any
State-sponsored games of chance      day! and don't mind throwing
 and the undercover street lotto     money into a hole that produces
 called the numbers                  a small chance of winning big

Where You Could Invest $1,000:      Total Amount You Would Have After
                                                a Year:

Stocks                              $1,562.50 (Stock-price increase
Shares in the ownership of a         plus dividends on about 30
 corporation giving the              shares of Pfizer, which rose
 shareholder a claim on the          from $34.10 to $49.25 a share
 company's earnings and assets       within a year)

Mutual Fund                         $1,190 (Balanced fund paying 19
A fund in which a company spreads    percent annually)
 its investors' money across
 several securities or
 corporations

Bonds                               $1,112 (Individual Retirement
Interest-bearing government or       Account in Vanguard's GNMA
 corporate IOUs that may pay         [Government National Mortgage
 interest at specific intervals      Association] or Ginnie Mae Bond
 and repay the principal at          Fund paying 11.2 percent)
 maturity

Money Market Deposit Account        $1,060 (Account yielding 6 percent
 Bank account that yields            interest per year)
 higher-than-average interest
 rates, allows check-writing
 privileges and levies no
 penalty for withdrawals

Certificate of Deposit (CD)         $1,040 (CD yielding 4 percent
Contract with a bank in which        interest per year)
 you agree to deposit a set
 amount for a set period of time
 for a fixed rate of interest

Savings Account                     $1,027.50 (Account yielding 2.75
Bank deposit account that pays       percent interest per year. Many
 low interest                        banks are now paying 1 percent
                                     or less annually)

Sous-sous                           $1,000 (if no one skips out after
Informal weekly or monthly           receiving the money pot)
 savings club in which members
 pool their funds, then take
 turns receiving the money pot

Under Your Mattress                 $1,000 (If no one finds out where
                                     you're hiding your stash, and
                                     you can stifle your own
                                     temptation to dip)

Lottery and the Numbers             The jackpot? Ha--don't count on
State-sponsored games of chance      it! And in the end, you'll
 and the undercover street lotto     probably have less cash to sink
 called the numbers                  into investments offering
                                     sure returns

"Historically, Blacks were underexposed to finance, and as a result many of us tend to be risk-averse or uninformed about investing," says ESSENCE finance and careers editor Lena Sherrod, who explores cash-growing options in "Is Your Money Working Hard Enough for You?" (page 141).