8 Easy-To-Understand ETFs To Replace a Savings Account

Reviewed by Cierra Murry

Investing can be complicated, and often, many have a way of making it seem more difficult than it actually is. The main goal for anyone who socks their money away is to make as much money as possible. Some of the safest avenues to save and earn interest are traditional accounts, such as a savings account or a certificate of deposit (CD).

The challenge? These traditionally “safe” savings vehicles often can’t keep pace with inflation, which means your money could actually be losing purchasing power over time. For example, you often face the problem of inflation when putting away money in savings accounts. Inflation means prices are rising, so your money buys less over time. So, with inflation at 2.4% for the trailing 12 months as of May 2025, a savings account paying 1% interest would be losing about 1.4% of its purchasing power.

Key Takeaways

• Traditional savings accounts and CDs typically offer returns below the inflation rate, which means your money could be losing purchasing power over time.
• ETFs can offer higher potential returns than savings accounts by investing in baskets of stocks, bonds, or other securities, though they come with more risk.
• Consider your time horizon before investing—ETFs are generally better suited for long-term goals than emergency funds or near-term expenses.
• Unlike savings accounts insured by the Federal Deposit Insurance Corp. (FDIC), ETFs can lose value when markets decline, making them a riskier but potentially more rewarding option.

In addition, most people want to do more than just hold steady with the rate of inflation. That’s why many investors turn to exchange-traded funds (ETFs) as an alternative to traditional savings accounts. These funds work by pooling money from many investors to buy a big collection of investments—stocks, bonds, or other assets.

ETFs can have just bonds or just stocks or just some other asset, or a mix of different types of assets. The trick is to find ETFs that have more of the kind of stability you’re used to but with a higher rate of return than you would get from a savings account. Below, we take you through eight likely to meet this standard.

Using Exchange-Traded Funds (ETFs) To Save

ETFs have changed how many everyday people invest their money. These funds sell shares on the major exchanges that give you ownership of a part of baskets of stocks, bonds, and other investments. Americans have embraced these investment tools in a big way — as of March 2025, there were over 4,000 U.S.-based ETFs managing over $10 trillion in assets.

While ETFs generally carry more risk than a savings account (meaning your investment could go down in value), many ETFs are designed to be less risky than buying individual stocks. They do this by spreading your money across many different investments. That’s so that if any of them do poorly, they can potentially make that up from the others.

For people who don’t need their money right away, these investment tools might work better than traditional savings accounts or CDs for building long-term wealth. Below, we’ll look at four main types:

1. Index ETFs that track the broad market moves. In other words, when you hear the market is up today, that would mean your ETF should be up, though you’ll want to listen or read for which index is up since your ETF might be linked to one of them.
2. Bond ETFs that focus on more stable investments
3. Sector ETFs that target specific parts of the economy.
4. Money market ETFs that hold short-term government bonds, akin to bank money market funds.

Many easier-to-understand ETFs within this group have often outperformed inflation. To get higher returns, you’ll need to take on more risk, but many ETFs offer much lower risk than individual stocks.

ETFs vs. Savings Accounts

Before you dump your entire savings account into an ETF, let’s make sure you understand the differences between the two:

What Your Money Buys

• Savings account: Your money stays as cash, just like keeping it in your checking account but earning some interest. The interest might be at a fixed rate or one that changes over time.
• ETFs: Your money buys pieces of investments like stocks or bonds that can grow (or shrink) in value.

How Safe Your Money Is

• Savings account: Up to $250,000 is protected by the government (Federal Deposit Insurance Corp. insurance)—you can’t lose your original deposit if it’s under that.
• ETFs: No government protection—value goes up or down based on market performance.

Getting Your Money When You Need It

• Savings account: Usually available anytime, though some banks limit monthly withdrawals on certain types of savings accounts.
• ETFs: Can be sold when the major stock exchanges are open, but you might have to sell for less than you paid if the markets are down.

Important

You can lose money when investing in an ETF. If you’re looking to make a major purchase soon or might other need the money soon, you might reconsider the idea of putting money into an ETF for now. That said, many ETFs are easily tradable to get your money in and out of your brokerage account relatively fast.

What You Can Earn

• Savings account: Generally a fixed interest rate that’s predictable, but typically lower than ETF returns.
• ETFs: Potential for higher returns through investment gains and dividends, but no guarantees.

Tax Considerations

• Savings account: The interest earned is taxable each year.
• ETFs: Tax implications vary. You may owe taxes on any dividends received and gains when you sell (if you sell the ETF shares for more than you originally paid). In addition, some retirement accounts can delay when you have to pay taxes until you withdraw from them later in life.

ETF

• Holds stocks, bonds, commodities, or other securities

• Fluctuates in value based on the performance of underlying assets

• Potential to earn a greater return

• You could lose money

• Trade on exchanges throughout the day

• Gains are typically taxable except in some retirement accounts

Savings Account

• Holds your money

• Pays a disclosed interest rate on your deposit

• Fixed or variable return that often lags inflation

• Money is safe and insured if something should happen to the bank

• Withdrawal restrictions can apply

• Interest earned must be reported to the IRS and is taxed

Index ETFs

Index ETFs follow a large market index. Despite there being bond indexes, in general, these refer to ETFs that track a stock index. But what is that? A stock index—the S&P 500 and Dow Jones Industrial Average are two famous examples—is like a scorecard that tracks how a group of stocks or bonds is doing overall.

That is, it follows the performance of a bunch of companies’ stock prices—for example, the S&P 500, tracks 500 very large U.S. companies. Instead of looking at just one company, an index gives you a snapshot of how the whole group is doing. Indexes thus serve as benchmarks for investment performance and are the backbone of index ETFs.

These funds are also called “passive“—that’s because the managers don’t have to pick any stocks; they are already chosen to be in the index the fund is promising to follow.

The Benefits of Index Funds

Today, index ETFs cover almost every type of index imaginable, from broad market indexes like the Dow to specialized ones that focus on sectors and regions. By following an index, these ETFs offer instant diversification—this means spreading your money across different investments to cut your risk.

These ETFs are also generally lower in cost. They’re also great for knowing exactly what you’re getting—there’s no guessing what’s in them and how they’re doing since they are based on widely covered indexes that you can look up at any time. Indeed for those like the S&P 500 or Dow Jones Industrial Average, you’ll hear or read about them at the top of the news.

That said, there are ETFs that are not really for beginners or those needing to ensure as best as they can that they don’t lose anything in what they sock away. These include crypto ETFs, commodity ETFs, and inverse ETFs that bet against the market or specific economic sectors.

The funds suggested in this article shouldn’t be seen as some beginner-type thing where you don’t see the profits like those with more money or experience do. In fact, many wealthier investors got much of their money and also learned from experience that these are some of the best ways to invest your money in over the long term.

With all this in mind, below are three ETFs to consider:

SPDR S&P 500 ETF Trust (SPY)

SPDRs (pronounced “spiders”) were the first index ETFs launched in 1993 to track the S&P 500. They opened the door for investors to access an entire index in a single, tradable fund. The first was the SPDR S&P 500 ETF Trust (SPY), which mirrors the performance of the S&P 500.

Not only is it the largest ETF in the world, but it’s also the oldest. Launched in 1993, the fund has over 600 billion in assets under management (AUM). The fund’s fees are only 0.0945%, which is higher than some of the funds that track the S&P 500 but, given its size, it might save you in terms of the spreads between the bid and ask prices for shares.

Expense Ratio

An expense ratio is for the fund’s management fee. For instance, for every $1,000 you invest, SPY charges less than $1.00 yearly, while another fund might charge only 40 cents. But SPY can save you money when trading because it’s very popular and trades more easily.

This is worth explaining since many investors just immediately choose funds with the lowest expense ratio. Let’s make this concrete with an example. Suppose you invest $10,000 in SPY. SPY’s 0.0945% expense ratio would cost $9.45 annually, while a smaller fund that tracks the same index might charge 0.04%, which would cost $4 a year—a $5.45 difference.

However, SPY’s higher trading volume typically results in spreads as tight as $0.01 to $0.02 per share, while less liquid ETFs might have spreads of $0.05 to $0.10 or wider. For more active traders, that can make a big difference over time.

The fund’s major holdings are listed below.

The iShares Russell 2000 Value Index ETF (IWM)

If you want to profit from the performance of smaller companies, you can try the iShares Russell 2000 Value Index ETF. Established in 2000, the fund costs less than the industry average while allowing you to have a stake in the potential giants of tomorrow.

Because its holdings are very spread out and many of them are smaller, lesser-known companies (see the chart below), it’s important to note that the top three sector weightings in late 2024 were financial firms (about 28%), industrials (about 12%), and real estate (about 12%).

The Vanguard Total Stock Market ETF (VTI)

If you want the broadest representation of the U.S. stock market, the Vanguard Total Stock Market ETF is popular for doing so. VTI takes the “buy everything” approach. With over 3,600 companies in its portfolio, it’s like buying a tiny piece of almost every public company in America.

VTI charges just three cents per $100 invested, making it one of the cheapest ways to own the entire U.S. stock market. Its returns, in line with the U.S. stock market as a whole in recent years, have been quite strong. The top sectors represented are technology (about a third of share value), consumer discretionary (about 14%), and industrials (about 13%) as of late 2024. The company holdings are below:

Note

Investors often use index ETFs as core holdings along with a mixture of bond ETFs in their portfolios.

Bond ETFs

Bond ETFs allow you to invest with less stress given the safety of bonds and without the risks of holding individual bonds—or indeed higher-risk stocks and other securities. Bonds are like loans to companies or governments, and they pay you interest in return, just as you pay interest on what you borrow to credit card or mortgage companies. These funds invest in hundreds or thousands of bonds simultaneously, making your money relatively safe.

That said, don’t expect to see big yields (what you earn from bonds) in these ETFs because of the more conservative nature of bonds. The older you are, the more your investment dollars should be in bonds. Here are two bond ETFs to consider.

Unlike savings accounts, bond ETFs can lose value when interest rates rise or if companies struggle to repay their debts. However, they typically offer more stability than stock ETFs and often provide monthly income payments to investors.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG)

The iShares iBoxx $ High Yield Corporate Bond ETF tracks the Markit iBoxx USD Liquid High Yield Index, which focuses on corporate bonds with higher interest rates but lower credit ratings. With investments in more than 1,200 of these bonds, it’s like owning a slice of corporate America’s debt market. Its returns have historically shown it can offer a higher yield than a typical savings account, though with more risk.

The bonds HYG holds are widely spread out among companies, though it has more sizable holdings in the consumer cyclical (about 18%), communications (about 17%), and consumer noncyclical (about 13%) sectors as of late 2024.

The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)

For those seeking a more conservative approach, the iShares iBoxx $ Investment Grade Corporate Bond ETF follows the Markit iBoxx USD Liquid Investment Grade Index.

This fund focuses on bonds from companies with stronger credit ratings, like Bank of America (BAC) and JPMorgan Chase & Co. (JPM). With over 2,800 different bonds and about $30 billion under management, it charges about 14 cents per $100 invested.

About a fifth of its bonds come from banking, with another 18% or so in consumer noncyclical and about 11% in communications as of late 2024.

Important

ETFs make investing simpler by letting you own a whole group of stocks or bonds in one purchase, saving you the time and effort it would take to research and buy each one individually.

Sector ETFs

While broad market ETFs buy the whole market and bond ETFs focus on loans, sector ETFs zero in on specific parts of the economy. They’re riskier than broader market funds since your money isn’t spread across different industries, but they can be useful for investors who have good reason to think that particular sectors are going to do well.

Since you expose your portfolio to higher risk with sector ETFs, you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don’t use them at all.

Consider the two funds below.

The Financial Select Sector SPDR Fund (XLF)

The Financial Select Sector SPDR tracks the Financial Select Sector Index, which tracks the stocks of the American financial industry. For about nine cents per $100 invested, you get exposure to banking giants, insurance companies, and payment processors.

As one would expect, much of the fund’s holdings are in financial services (about a third of assets by value), banks (about a quarter), and capital markets (about a quarter). Major holdings include familiar names like Berkshire Hathaway (BRK.A, about 13% of holdings), JPMorgan Chase & Co. (about 10%), and Visa Inc. (V, about 7%).

If you were invested in the ETF in recent years, you would have your shares soar on the back of a booming financial industry. For example, in 2024, the fund gained more than 40% in returns for its investors.

The Invesco QQQ Trust Series 1 (QQQ)

The Invesco QQQ Trust, while not technically a sector fund, has become the go-to ETF for technology investors. It tracks the Nasdaq-100 Index, which includes the largest nonfinancial companies listed on the Nasdaq stock exchange.

With tech giants like Apple Inc. (AAPL, about 9% of holdings as of late 2024), NVIDIA Corp. (NVDA, about 8%), and Microsoft Corporation (MSFT, about 8%) among its top holdings, this ETF has delivered impressive returns—over 20% for the first half of the decade, and about 36% in returns in 2024 alone.

Its holdings include about half of the fund’s value in information technology, with 15% in communication services and another 13% in the consumer discretionary sector.

Money Market ETF

In 2024, a new kind of ETF was launched, the first true money market ETF, potentially offering the best of both worlds between savings accounts and fund investments.

Texas Capital Government Money Market ETF (MMKT)

The Texas Capital Government Money Market ETF marks the first time investors can access a money-market fund using the convenience of buying shares in a fund through their brokerage account. For investors worried about moving beyond savings accounts, MMKT might offer an appealing middle ground. Like a savings account, it focuses on maintaining stability but also seeks higher yields than typical bank accounts.

Of particular importance is that MMKT goes beyond other ETFs following what’s known as Rule 2a-7, which is the same strict government regulation that traditional money market funds must follow. This means 99.5% of its assets must be in cash or short-term government securities.

Warning

Be mindful that if you invest in an ETF within a retirement account, you might be unable to withdraw funds until retirement without paying a penalty.

While the fund isn’t FDIC-insured like your savings account, these requirements make it a more conservative approach within the range of options in your brokerage account.

The fund charges 20 cents per $100 invested (0.20% expense ratio), which is higher than some savings accounts but lower than many investment options. For investors looking to dip their toes beyond savings accounts, MMKT represents a way to acclimate yourself to how the markets and brokerage accounts work after perhaps only having bank accounts previously. Later on, if you wish, you can broaden your horizons to other ETFs like those discussed above.

Can I Lose Money by Investing in ETFs, Unlike Most Savings Accounts?

Yes, it’s possible to lose money when investing in ETFs. If the underlying assets (the stocks or bonds) in the ETF portfolio decrease in value, the ETF’s share price will also decline, resulting in a loss for you.

Savings accounts are generally considered safe, as they are insured by government agencies (e.g., FDIC in the U.S.) up to a specific limit, protecting against the loss of the principal amount.

Are ETFs a Suitable Option for Short-Term Savings?

ETFs are generally better suited for long-term investments. Their value can fluctuate because of market movements, and they are exposed to market volatility—the ups and downs of the market.

For short-term savings goals or emergency funds, savings accounts are a safer option because of their stability and your ability to get your money quickly out of the bank.

Are ETFs As Liquid As a Savings Account?

ETFs are highly liquid—this means you can buy or sell them quickly. These funds can be bought or sold during market hours at the prices found on your brokerage screen. This gives you relatively quick access to your investment capital.

Savings accounts are more liquid, allowing you to withdraw or transfer funds as needed—no delays waiting for transfers to and from your brokerage account.

Do ETFs Provide Any Form of Insurance or Protection?

Unlike bank accounts protected by FDIC insurance up to $250,000, ETFs don’t come with government-backed insurance. However, you can take steps to help protect your portfolio from significant losses.

One common strategy is diversification—the investment version of not putting all your eggs in one basket. For example, instead of buying just one ETF that tracks technology stocks, you might spread your money across different types of ETFs—say, some that track large companies, some that track bonds, and maybe some that track the international markets.

The Bottom Line

A savings account is a safe place to park your cash. Many times, especially when costs are going up quickly, it can also mean losing money. To beat inflation and generate something extra, you generally need to invest in securities, and the ETFs we discussed offer an inexpensive, relatively low-risk way to do this. That said, there is more risk involved, especially with funds that hold stocks. With ETFs, there’s a lot of choice. You can invest in stock indexes, bonds, and even specific sectors.

However, ETFs aren’t for everyone. Before investing in them, you should be aware that ETFs don’t offer guaranteed returns, and you can lose your money.