A savings account has a fixed interest rate, which means that the money in your account earns a fixed amount based on your account balance. Savings accounts are generally “low risk, low reward,” because while you won’t lose money, but the interest rate on your account is capped by the FDIC.
An investment account has a variable return rate that is not fixed or capped, and fluctuates with the stock market, which means more risk but also potential for higher returns than a savings account.
It’s common to see people with both a savings account for immediate needs, and an investment account for longer term growth potential. A 401k, for example, is a common type of long term investment account for retirement.
When creating an account for your child’s future use, an investment account can be quite powerful, because it gives the money you put in time to grow at a rate that could be higher than a savings account.
*For an illustrative visual of how your money could grow in an investment account, please refer to the chart here.