To tackle inflation, the Federal Reserve has been raising interest rates. So, if you’re eager to make the most of your savings and earn extra interest, here are some of the options you can check out.
- Savings accounts provide instant liquidity and interest income.
- Digital financial institutions challenge traditional institutions with higher interest rates and ease of services.
- Evaluate options carefully and shortlist the best financial instrument based on requirements and risk tolerance to maximize interest income.
What Options Are There To Earn More Interest On Your Money?
There are plenty of options to earn more interest on your hard-earned cash, such as:
- High-Yield Savings Accounts
- Certificates of Deposit
- Online Savings Accounts
- Money Market Accounts
- Rewards Checking Accounts
- Investments (i.e. Stocks, Bonds, etc.)
Each option comes with its own unique set of benefits, drawbacks, and risks.
However, many savings accounts are currently offering rates lower than the inflation rate, which means your money is losing purchasing power over time. But there are ways to increase your return on investment, regardless of the state of the economy.
High-Yield Savings Account
A high-yield savings account (HYSA) is virtually the same as a traditional savings account, except you get to earn more interest on the money you store inside it. For example, according to the FDIC, the average rate for a traditional savings account is 0.35% APY in the United States. High-yield savings accounts, however, offer average rates of 3% APY—that’s over 8 times more interest.
Digital-only banks, neo-banks, and online credit unions typically offer the highest HYSA rates, so if you prefer managing your account through online or mobile banking, this type of savings account may be the best choice for you.
These banks often charge no monthly maintenance fees or minimum deposit requirements, and if they do, they’re often lower than traditional banks. Be sure to verify the ATM network/coverage of these institutions for easy access to physical cash if needed.
Interested? Have a look at our best providers for HYSAs.
Certificates Of Deposit Account (CD)
CDs are time deposits where you commit to keeping your money in the bank for a set time to earn interest. Here are some key points that define CDs:
- Traditional and online banks offer CDs, but online banks typically offer higher interest rates.
- Standard CD durations range from 30 days to 60 months, with longer terms usually offering better returns.
- Early withdrawal penalties may be imposed if funds are withdrawn before the locking period matures.
- CDs are ideal for people who want to lock their funds for a certain time and earn a good rate of return without needing immediate access to their funds.
- On average, CD yields range from around 0.10% to 1.50% and can vary depending on factors such as the amount invested, the CD term, and current market conditions.
- CD accounts typically have no monthly maintenance fees, and online banks may have low initial deposit requirements for CDs.
With CDS, you may also create a so-called CD ladder. Basically, you divide your total deposit into multiple CDs with different maturity dates. This way, you can access your money penalty-free when each CD matures.
Not only does a CD ladder give you more options, but it also protects you from interest rate changes. If rates go up, you’ll have CDs maturing sooner, so you can take advantage of the higher rates. If rates go down, you’ll still have some CDs earning at the higher rate.
Ready to find the best providers? Check out the best CD rates around.
Online Savings Account
An online savings account is a type of bank account that is operated exclusively online. They generally provide higher interest rates than traditional banks due to the lower overhead costs.
Interest rates can vary depending on the financial institution, account type, and the amount of money being saved. Online savings accounts go to great lengths to ensure customer’s cash and transactions are safe, making it a more practical and efficient method of digital banking.
Money Market Account
Money market accounts offer benefits of both savings and checking accounts, including earning interest and check-writing capabilities. Some accounts may also include a debit card for ATM transactions.
These accounts typically require a minimum deposit and maintaining a certain balance, with penalties for falling below the threshold. MMAs are ideal for short-term savings goals, but not recommended for long-term financial planning like retirement.
Money market accounts generally have higher interest rates compared to traditional savings accounts, although they may also require higher minimum balances or have more restrictions.
Want to find out more? Have a look at the best MMA rates.
Rewards Checking Account
A rewards checking account offers incentives for creating an account and upholding specified minimal standards. Some banks, such as Axos Bank, Capital One, Charles Schwab, First Financial Bank, HSBC, or Wells Fargo, provide reward checking accounts, which may earn you cashback on debit card transactions.
Other rewards checking accounts have lower minimum balance requirements and larger interest rates. Rewards might include a cash bonus, cash back (similar to a credit card), or a higher APY similar to a high-yield savings account.
To receive the extra interest income, you might additionally need to pass through a few hoops, but it may be worth more than other savings choices. The best candidates for this type of checking account are those who frequently utilize debit cards for transactions.
Tips For Maximizing Interest Earned On Savings Accounts
Every bank offers a different rate of interest you can earn on your savings. Earning returns on savings accounts is possible in a variety of ways. However, due to a lack of knowledge, people are unable to take advantage of a savings account to its fullest potential.
To get the most out of your savings account:
- Open a savings account with a bank that provides more enticing interest rates. After all, a higher interest rate entails larger returns. Before deciding on a bank, always compare savings rates online.
- Opt for high-yield savings accounts, credit unions, and online accounts with a minimum deposit requirements to open an account. Oftentimes, you can get maintenance fees waived if you keep a minimum balance.
- Use the debit card attached to your savings account. Debit cardholders receive a multitude of discounts, bonuses, and other privileges from prominent banks. Make the most of it.
What Determines Which Is The Best Account For Your Needs?
Each of the choices has the potential to increase the interest rate on your savings. However, the interest-bearing choice that is best for you will depend on your requirements, risk tolerance, and level of work.
For example, bank bonuses for signing up or putting a certain amount of money in may be quite lucrative, but need a lot of work and close attention to detail. Although CDs may provide greater rates, you must lock up your money and face early withdrawal penalties.
Keep in mind, while interest-bearing accounts are a great way to earn a bit of extra cash, they aren’t a replacement to a proper investment strategy. It’s important for every individual to have an investment plan in place for retirement outside of high-yield savings accounts, rewards checking accounts, and the like.
One of the many advantages of keeping money in a savings account is the opportunity to earn interest, and increasing your interest earnings will only enable you to keep or enhance the purchasing power of your nest egg.
While protecting you from more volatile stock investments that can exceed your risk tolerance, these low-risk options can help you increase your interest profits.
Want to know more about saving money? Check out our article on the different kinds of savings accounts.