5 Options for Cash Savings

Millennials are hoarding cash like it’s going out of style. Gen Y prefers to see their cash in what they see as completely safe and reliable savings vehicles (read: regular savings accounts down at the local bank) over potentially risky investments in the market.

It makes sense, too -- or at least, it makes sense as to why younger professionals want to avoid putting their money into assets they view as volatile like stocks. Millennials have been front and center to the Great Recession of 2008, coming of age at a time where there parents’ retirement accounts tanked and portfolios dwindled.

Having experienced the Recession firsthand, many Millennials are wary of the stock market and see savings as a secure way to manage financial assets. But that's no excuse to avoid investing in the market, because even though it's obvious where the fear is coming from (a nasty experience with a recession), we can't just avoid investing all together.

In fact, it's critical that Gen Yers educate themselves about investing and start doing it right away.

What's Wrong with Millennials and Cash Savings?

What Millennials with massive amounts of assets in cash fail to see is that even this strategy is highly risky if they stick with it over time. That's thanks to the negative power of inflation.

If you keep your wealth in cash, you better be making an awfully lot of money. The truth is, the average individual cannot make enough money over their working career to have a secure retirement. Inflation will erode the value of your cash savings over 30 or 40 years.

Invest wisely over that same period of time, and you'll have more than enough to reach your financial goals and enjoy the retirement you want.

So here's the bad news for cash-loving Millennials right now: they're losing out on opportunities to grow their net worth by avoiding investing in assets like stocks.

And here's the good news: cash-saving, investing-averse Millennials can use these 5 simple steps to ease into the investing process and optimize their saving. Here's how to get started:

Save with an Online Bank

You can use an online bank to get a higher interest rate on their savings account, accruing more interest on their cash reserves. Online banks tend to have a higher interest rate in exchange for not having brick and mortar locations.

As a saver, you want to cut out checking account fees and start earning more interest with their savings accounts through online banks.

Create Targeted Savings Accounts

In addition to getting a higher interest rate, some online banks like Capital One 360 offer the option to create sub-savings accounts to help reach all your savings goals. You can have separate savings accounts for an Emergency Fund, Travel Fund, Car Fund and more.

Using targeted savings accounts can help you separate your cash and it gives your money a job -- by stating what your intended purpose is, it’s harder to spend that cash frivolously.

Start Investing with a Roth IRA

Although you may be decades away from retirement, the beauty of time and compound interest can work in your favor. Even by starting small right now, consistent contributions to investment accounts over time will provide a sizeable nest egg in the future.

For risk-averse Millennials looking to get started on retirement planning, investing in a Roth IRA is a good option. A Roth IRA is an individual retirement account that allows your money to grow tax-free.

Another bonus with a Roth IRA is that you can withdraw your contributions (not earnings) anytime without a penalty. A Roth IRA is a nice, hassle-free investment option if you're considering dipping a toe in the investment waters. It can help you grow wealth and prepare for the future.

Look to invest in no-load or low-load funds with low expense ratios. Eliminating fees means you get to keep more of your earnings in your nest egg.

As to how much you should save? As much as you can. Aim for a minimum of 10% to 20% of your gross income (that means before tax!). If you want to make a big impact, go for 30% to 50% -- or more.

Max Out A 401(k)

In addition to investing in a Roth IRA, Millennials that are offered a 401(k) employer-sponsored retirement plan should take full advantage of this investment opportunity. Contribute at least enough to secure the match -- that's free money on the table, so take advantage!

Don't have a 401(k)? Depending on your employer, you may have access to a similar retirement savings vehicle like a 401(b) plan or a Simple IRA. Check with your human resource department, or the individual that handles those issues for your company, to see what your options are and then get signed up.

Set up automatic contributions and make sure you bump those contributions up every time you earn a pay raise.

And again, look to invest the money in your 401(k) in funds that . Try to avoid actively managed funds, as research shows they underperform passive funds. Plus, they cost more. (What's a "passive fund," you ask? Think index funds.)

Get the Help You Need

You don't have to navigate the world of investments alone. You can work with a trusted professional who can map out a financial plan with you.

XY Planning Network advisors are all fee-only, which means they charge a flat rate for financial planning services. They don't make money from selling financial products that you don't need. They also work as fiduciaries, which means they're sworn to work in your best interest -- and they specialize in serving Gen Y and Gen X clients, so they definitely know what you're going through.

Advisors like these are the kind that you want helping you if you're confused about investments or if you don't know where to start.

And that's the key thing: get started now and take advantage of the power of time and compound interest. As you learn and grow as an investor, you can discover many ways to invest your cash wisely -- so that your money is working for you as you grow your wealth.