Checking Accounts are Mattresses
The idea of stuffing money in a mattress is thought to have originated during the Great Depression. A fairly decent summary is available here. The concept is that your money is not safe anywhere else, which was true when bank runs were more common. These days, runs on banks are almost impossible. Banks have to keep a large fraction of money available and cannot leverage more than a certain amount. That hasn't prevented catastrophe (see the financial crisis of 2007-2009) but since then, it has been extremely unlikely in the United States. Elsewhere, your mileage may vary.
Interest...ing
So now banks are safe, FDIC insured up to $250,000 per account. That means that there's no way you cannot recover the first $250,000, since the government is backing it up and will deal with the bank who cannot produce a customer's money if they so demand. Also, the bank cannot just hold your money without giving you something for it. The bank uses your money to cover the government-mandated margin they must hold. If the bank wants to lend out additional money, you must deposit more of your own. They make money on this - how much is usually dictated by many things, but primarily the Federal Funds Rate / LIBOR. That second one is the London Interbank Overnight Rate - the interest a bank charges to lend money to another bank globally. The Fed Funds Rate is just for the US - US banks loaning to each other. This is considered easy/guaranteed money. So say the Fed Funds Rate is 4.5%. A particular bank (like this one) can say "look, I can only legally leverage myself 10:1 (loan out $10 for investments for every $1 in cash I hold) so I need lots of money" and entice customers to put their cash in that bank by offering interest. In this case, the bank is passing on almost the entirety of the money made from the short term loans onto the customer. In exchange, they get a cash infusion which allows them to loan money out on margin to invest in other things - mortgages, securities, fancier financial instruments, whatever. That's why you get interest. And checking accounts are typically used and have income flowing in and expenses flowing out, which means the balances are less stable, and that's not good for the bank, which is why you get such a low interest rate in checking accounts but a high interest rate in savings accounts. The small print on most savings accounts is that you can only withdraw money half a dozen times a month or something, because they want it to be hard to make the balance go down.
Where To Put Money
So sure, go ahead and put your money in that My Savings Direct account above at get (as of this writing, Jan 2023), 4.35% interest. That's $435 per year for every $10,000 in the bank. The rate is not guaranteed, but it will not "jump" to 2% or 6%, and you can't lose the money so it's probably a safe bet. There are also CDs (Certificate of Deposit) that banks offer. Instead of a fluctuating rate, banks commit to a particular interest rate for a year or two. Right now, you can lock in 4.5%-4.75% APY for 12-15 months with various well-known banks. You can always check the rates here. That's a guaranteed rate now for a guaranteed term. The difference is that you cannot touch that money. You might be able to collateralize it (i.e. borrow against it) but the money itself is "frozen" for the period of the CD. That's a pretty short time horizon, well worth it.
Next, you can invest in federal/municipal bonds. These are bonds issued by the government. One such bond is the I Bond. You can currently buy up to $10,000 a year electronically and $5,000 on paper per social security number. The limit was up to $30,000 a year back from 2003 to 2007. The current rate is 6.89% and it resets every 6 months. The federal government would have to default for you to not get your money. That seems unlikely; not impossible mind you, but highly improbable. Since 1998, the effective rate has hovered between 6.5% and 10%, let's use a conservative average of 7%. If you did nothing else but buy $15,000 each year from 1998 to today (25 times), you would have needed $375,000. But, that first $15,000 is now worth just over $81,000. And all total, you have just over $982,000. Combined with social security (if you're over 30) of $1,500 a month, you could draw $30,000 a year and live off of $48,000. Is that the lap of luxury in a New York City penthouse? No. But is it a 2 bed/2 bath rental in the suburbs? Absolutely.
Next is equities. The stock market. Arguably, you should ignore anything that isn't settled into the Russell 3000 at year's end. I could write a whole article explaining the stock market as I understand it, which would be a better-than-layman but far from expert take, and might do that one day, but sufficed to say, this is where many people have made and lost their money. They say the stock market always goes up, and broadly speaking, this is true. From 2000 to 2012, this index could not break through the dot com bubble line, but before and after, there is no 5 year period where you do not have more money at the end than at the start. In fact, if you look at any 20 year average return, the market is, at worst, even, and sometimes returns 10% to the saavy investor with optimal timing. In the old days, you kept your money at a brokerage, and had to pay money to trade. This was true as recently as 2010. But Robinhood changed all that. They commoditized all the parts of trading such that the cost of the trade could effectively be free to the consumer. Now many places offer free trades. Returns from the stock market, as a broad investment (so investing in equities that track large areas of the market, not individual stocks) are around 6% historically, but individual stocks can swing that number anywhere between losing everything and making your wildest dreams come true. Even a $500 investment in Amazon or Apple or Microsoft in 1999 would be worth $250,000 today.
If buying and selling stock bores you, you can also short stock, this is when you borrow stock then immediately sell it. If the price goes down, you buy the stock back, returning the stock to whomever loaned it to you, and you pocket the difference. This way, you can make money even when a stock goes down. And if that's not good enough, you don't even need to buy and sell stock, you can bet on the price of the stock itsef. This is called options trading, you are buying and selling the right to buy and sell stock at a particular price at a paritcular time. One insane example of this was the whole GameStop bubble of 2021. In 2020, with the stock trading at $4 or $5, a man from Boston decided to buy the right to buy the stock for $60 for 1 year in the future. Now, since this looked like an impossible occurrence, the price of this was $0.01 (which means $1, since options are bought and sold in blocks of 100 shares). He bought thousands of dollars of options. Then, similar to how there can be a run on the bank, there can also be a short squeeze. See, GameStop was trading low because lots of people were shorting the stock. They were shorting the stock because they thought the company was doing badly and was going to go bankrupt (if you short a company that gets delisted, you keep all the money). But recall that shorting the stock means someone has to have the stock to lend you. What if there wasn't enough stock to go around between the people who wanted it and the people who wanted to short it? Simple economics - supply goes down, price goes up. The folks who loan short sellers stock could have used the money for something else instead of buying the stock. Also, any such buyer of shorts or loaning entities have margin rules - they cannot owe a significant amount of money or they will be "margin called" to ensure that the loaning entity is not left holding the bag. So this guy got everyone to buy lots and lots of shares and hold them. This caused the price to spike. Which caused the margins to go too high, so short sellers had to close their positions at a loss. With fewer shorts, the price went higher, and the cycle continues until it bursts. In this case, the stock went to $500. Now, if you had bought 100 shares at $5, you spent $500 and now have $50,000, so you made 100x your money, that's impressive. But remember the guy from Boston didn't buy the stock - just the right to buy the stock, at $60. With the stock trading at $500, he could say "I'd like to buy the stock now" and pay $60, then immediately sell it for $500 and make $440. But he did this in blocks of 100, and it only cost him $1 per block. So $1 made him $44,000. That's 44,000x your money, far more interesting. Anyway, enough about this for now. The conclusion is: set aside $50 or $60 to experiment with here, don't be surprised if you lose it all, but even $1 can turn into $10,000.
Real estate is another major area for investment. Sometimes a company pools lots of money to buy lots of properties to smooth out risk and do very large dollar deals. These are called Real Estate Investment Trusts or REITs. Some of these are even publicly traded, although they track real estate, and aren't thought of as a pure equity stock like Netflix or Amazon. There are companies who take money privately to do the same such as Diversyfund, Fundrise, Realty Mogul, Rich Uncles, Sharestates, CrowdStreet, RealCrowd, Cadre, and GroundFloor. There are probably dozens more but those are some of the larger ones. You can also invest in deals closer to the action, but that usually requires you to be accredited (which means you have made $200,000 a year or more and will continue to do so). In those cases, you become part of a group that acts like the companies I listed, potentially even directly involved in construction or financing. Returns here can swing wildly, but 7% is also a realistic estimate.
Gold, silver, oil, and natural gas are also investment vehicles. You can invest in stocks that track these closely, but, you can also actually buy solid gold and silver, or get into the business of buying oil barrels or oil and natural gas futures (futures here are contracts for the price of the commodity typically a few months out). Lots of money to be made and lost here.
I would be insane not to mention crypto. It is so new, not even 15 years old. But in that time, has made many people rich and many more poor. Bitcoin was the first, but now there are hundreds, thousands of coins to invest in. There was a time a Bitcoin was $1. Dominos used to charge 10 Bitcoin for a pizza. That would be an expensive pizza today. I got into it around 2014 or 2015 but did not commit the way I should have, in hindsight. Could have retired already, for sure, many times over.
Alternatives exist to these - companies like YieldStreet offer investments in art and legal proceedings and more outside edge stuff like that. AngelList, WeFunder, StartEngine, and Republic offer investments into early stage startups doing all sorts of things. Prosper, MyConstant, and Funding Circle take your money and lend it out, paying you back with interest and keeping a cut. This allows you to act like, and be rewarded like, a bank without needing the kind of money bankers have.
Summing Up
My thesis has long been that every dollar should be working for me. I keep very little money in my checking account, and even less in my savings account. I put all my money to work. Sometimes it doesn't work very hard. Sometimes it downright sucks, and I lose money. But over the long run, over decades and many opportunities, the expectation is to at worst break even (inflation adjusted), and at best, turn a little bit of a profit so I can enjoy retirement. My investment philosophy is not for everyone, but the days of just letting money sit in the bank should be behind us all - money making under 4% a year for you is effectively losing money, since the costs of things is always going up. Just ask your parents how much they used to pay for bread, eggs, fast food, or gas. Do not be fooled by the fact that flat screen TVs are cheaper than they ever were, and cheaper than all other kinds of televisions ever were, that is a different mechanism at play that counterbalances inflation. Put your money to work.