Money sitting in a checking account earns less than 0.2% a year. Move it into a 3-year term deposit and you might get 2%+. A wealth management product could reach 3%, and an index fund might go higher — but with more risk. A lot of people struggle with the same question: how do you actually compare savings and investment returns, and how should idle cash be split? Let's stop guessing. We'll line up term deposits, money market funds, wealth products, and index funds on the same ruler, then give you an allocation framework you can actually use without miscalculating.
Four Products: Know Yield, Entry Barrier, and Risk First
Before comparing returns, understand what each product really is. Term deposits are protected by deposit insurance and guarantee principal, but yields are low and liquidity is poor — withdraw early and you get checking-account interest, so locking money up for years only to earn that small rate may not be worth it. Money market funds (like the popular app wallets) aren't guaranteed but carry minimal risk, offer near-instant access, and yield roughly 1.3%-1.8% — think of them as an interest-bearing wallet. Wealth management products typically yield 2%-4% with low to medium-low risk, but there is no longer any implicit guarantee — net values genuinely fluctuate. Index funds can deliver 6%-10% over the long run, but short-term swings are real and a single year can be down 20%; you need to stomach drawdowns and hold through cycles.
| Product | Approx. annual yield | Principal / risk | Liquidity | Best for |
|---|---|---|---|---|
| Term deposit | 1.5%-2.2% | Guaranteed | Poor (early exit loses interest) | Money locked away for 3-5 years |
| Money market fund | 1.3%-1.8% | Very low risk | Good (T+0/T+1) | Daily cash, short-term reserves |
| Wealth product | 2%-4% | Low-medium (NAV fluctuates) | Medium (by term) | Steady growth over 1-3 years |
| Index fund | 6%-10% (long term) | Medium-high (volatile short term) | Good (redeem anytime) | Long-term accumulation, 5+ years |
Note: those yields are rough ranges and shift with the market. The whole point of comparing is to convert every product to an annualized return first — the percentage calculator can quickly convert monthly returns or cumulative gains into an annualized figure, so you're not comparing apples to oranges.
The Right Way to Compare: Annualize, Then Compound
Most people do this math wrong in two ways. The first error: comparing total interest without holding the term constant — a 3-year deposit with 6% total interest looks better than a 1-year product at 3%, but both are roughly 2% annualized; the difference is just that one locks money for two extra years. The correct move is always to annualize every return before comparing.
The second error: ignoring compounding. When wealth products and fund gains keep reinvesting, the compounding effect over 5+ years becomes enormous. Run the numbers: $100,000 at 2% annualized versus 6% annualized. After 10 years that's about $121,900 versus $179,100 — a $57,000 gap. Push it to 20 years and the gap exceeds $150,000. That's why compounding is sometimes called the eighth wonder of the world. To see exact figures, drop different rates into the compound interest calculator — enter principal and years and the divergence is instantly visible.
For longer-term planning, the CAGR calculator converts a fund's "grew from A to B" track record into a true compound annualized rate — a product marketed as "+50% cumulative" may only be 8%-9% annualized, and a single consistent measure keeps you from being led by marketing language.
How to Allocate: The Four-Bucket Onion Method
Rather than obsessing over "which earns more," sort money by purpose first and match each purpose to a product. This is the four-bucket method:
- Bucket 1: Money you spend day-to-day (3-6 months of living costs) — keep it in a money market fund, accessible anytime, earning a little; the priority is that it can't be lost. Aim for 10%-20% of assets
- Bucket 2: Money that protects you (emergency fund) — for job loss, illness, and surprises; term deposits or low-volatility products, principal safety first. Around 10%-20%
- Bucket 3: Steady growth money (not needed for 3 years) — wealth products, bond funds, and other low-to-medium risk options, with the goal of beating inflation. Around 30%-50%
- Bucket 4: Long-term growth money (untouched for 5+ years) — index funds and other equity assets, absorbing volatility in exchange for long-term returns. Around 20%-40%
These ratios aren't fixed; they depend on your age, income, and risk tolerance. If you're young, income is stable, and big spending is far off, raise Bucket 4. If large expenses (housing, education, retirement) are near, shift weight to Buckets 1 and 2. The single governing rule: the sooner you need the money, the more it should be protected; the farther away the need, the more it can absorb volatility for return.
Three Traps Most People Fall Into
Finally, three common mistakes that affect your wallet more than picking a higher rate:
- Treating "deposit interest" as the whole picture: early withdrawal reverts to checking rates, and the rate premium on a locked term can be wasted — ask yourself whether that money can truly stay untouched for 3 years before committing
- Scaring yourself with short-term swings: selling a fund after a 10% dip turns a paper loss into a real one; long-term assets are about time in the market, not panic-driven decisions
- Looking only at past returns, not risk: 8% over the last 5 years doesn't promise 8% going forward; higher returns mean higher volatility — use the CAGR calculator to see the true annualized rate before deciding whether to get on board
In one line: savings versus investments isn't a "which is better" multiple-choice question — it's an allocation question organized by purpose. Split your money into daily, emergency, steady, and growth buckets, match each to the right product by its time horizon, then judge the real result using one annualized, compounding yardstick. Open the compound interest calculator, model each bucket's plan, and you'll understand far more than the crowd buying on momentum.