By Scott Burns

Q. Your recent column on how little you could earn on a $1 million bank deposit made me wonder. Can you guess what the banks might earn as a return for having that $1 million on their books? —G. D., from Dallas, TX

A. How much a bank could earn depends on how (and if) the money would be loaned out. A one-year adjustable home mortgage would bring about 3 percent, a prime rate business loan would bring 3.25 percent (a small business would be charged more), a 4-year new car loan would bring about 4 percent, a 4-year used car loan would yield about 5 percent and credit card balances would provide a gross yield of 12 percent or more. I'd guess an average of 4 percent. That means the bank would earn about $40,000 on your million while paying only $5,000 for the deposit.

Think of it as a special tax on savers: It's a tax rate of 87.5 percent, regardless of income.

Q.I have a son who graduated about two and a half years ago with a Masters in Computer Science. Essentially, he writes programs rather elegantly. So one of the major tech firms hired him a couple of years ago for a 6-figure paycheck. Here is the problem. He is frugal, so much so all of his money goes into a saving and checking account. Then it remains there!

My son does not want to risk losing any part of his money. He has no trust in the stock market. Over the last two years he has saved a lot of money, all in his bank account. So, can you recommend some ways he could get something more than the bank will pay and still fulfill his requirement of not losing any principal? I have my ways and have done well— but he has rejected all my ideas so far. —R.J., by email

A. In the big picture this is a great problem to have. Your son is employed. He earns good money. And he is saving lots of it in an economy where 9.2 percent are unemployed, millions of people are earning less than generous wages, most people aren’t saving and our government is borrowing itself into bankruptcy. So while most people are looking at a retirement that will include little more than Social Security, the only issue your son faces is how much more he will have to save because he insists on low-return, riskless investing.

Since he is a computer scientist he probably has a good working understanding of probability and statistics. I suggest that you challenge him to exercise that ability to explore where and how real wealth is created. The challenge we all face is to figure out what combination of investments will allow us to accumulate an increasing amount of real purchasing power while we are working. We do that so we will be able to have some purchasing power while we aren’t working. That challenge, like the rest of life, involves dealing head-on with probabilities rather than certainties.

Here are some core facts:

Over the 80 years from 1930 through 2009 the S&P 500 stocks provided an annual return of 9.4 percent. Inflation over the same period was 3.2 percent, leaving a real (but pre-tax) return of 6.2 percent a year. If you figure that 15 percent of the return is lost to taxes, the net inflation adjusted return is 4.79 percent.

The comparable figure for super-safe Treasury bills over the same period was a gross yield of 3.7 percent. This works out to a real return of minus 0.06 per cent a year after the same tax rate and inflation. Raise the tax rate and the net real return will be lower.

The implication here is that your son could save for 8 decades in complete safety, but would lose purchasing power after taxes. That’s not a good deal.

So large cap stocks may have lost for an entire decade— as they did from 2000 through 2009— but over time they are a better bet than riskless savings. The uncertainty of return and the probability of loss can be reduced (but not eliminated!) by diversification. It’s an interesting problem. My hope is that there is some small level of risk that your son can convince himself to take.