Should you invest money in a savings account or invest money in mutual funds?
The answer to this question depends largely on how soon you'll need the money. If you're saving up to pay for a big vacation or next year's preschool tuition, be conservative: Put the money in a savings account, a money-market account, or a CD (search for the highest interest rates for each at bankrate.com). Most of these accounts are federally insured and guaranteed to increase in value. The main difference: CDs tie up your money for months or even years, while savings accounts and money-market accounts let you withdraw the money at any time (money-market accounts often have a minimum-balance requirement of $1,000 or more).
But for long-term investing -- including college savings and retirement accounts -- mutual funds are the way to go. Since they comprise a variety of stocks (and sometimes bonds), they are subject to declines, depending on market conditions. But you can expect a much higher average rate of return over the long term.
Bottom line: If you might use the money within a year or two, keep it in the bank. Otherwise, invest it in a mutual fund.