And while savings accounts are usually good places to store money you need regular access to, they’re not the only option. There are alternatives to savings accounts that earn interest and can also give you relatively easy access to your money. From high-yield checking accounts to certificates of deposit (CDs), consider all of your savings options so you can choose the ideal saving solution for your needs and goals.
Certificates of Deposit (CDs)
A certificate of deposit, or CD, is a type of account where you save your money for a set amount of time in order to earn a fixed amount of interest. When you open a CD, you’ll need to make a minimum initial deposit and choose a CD term. The CD term is the length of time you agree to keep your money in the CD. While CD terms vary by lender, they typically range from three months to five, and sometimes even 10 years. Generally, the longer the CD term, the higher the interest rate. Some lenders offer shorter-term promotional CDs that come with higher rates. Since CD rates are almost always fixed for the entire term, you can easily calculate how much interest you’ll earn by the end of the term. The downside, however, is you’ll be on the hook for an early withdrawal penalty if you need to pull the money out of the CD before it matures. While a CD is less liquid than a savings account, it can often yield higher returns. For example, in September 2022, the national average interest rate for a one-year CD was 0.60%, while the national average interest rate for a savings account was 0.17%.
Money Market Accounts
You can think of money market accounts as hybrids between checking and savings accounts. Once you open a money market account, you can write a certain amount of checks each month and even make purchases with a debit card. The main benefit of a money market account is that it typically earns a higher interest rate than a checking or savings account. For example, in September 2022, the national average interest rate for a savings account was 0.17%, but a money market account had a slightly higher national average interest rate of 0.18%, according to the FDIC. You may have to meet monthly minimum deposit requirements or pay maintenance fees with a money market account. Also, there will be a limit on how many transactions you can make each month. Most money market accounts only allow for six withdrawals, account transfers, debit purchases, or check payments per month. If you exceed this limit, you might be charged a penalty.
High-Yield Checking Accounts
High-yield checking accounts, which often are offered by online banks that have high-yield savings accounts, are also places to build an emergency fund or work toward another financial goal. They’re essentially traditional checking accounts that also pay interest. To qualify for the highest rate, you’ll need to meet certain requirements, which vary by bank or credit union. For example, you may need to commit to a set number of debit transactions per month and sign up for online banking. On the flip side, some high-yield checking accounts may offer perks such as getting access to your paycheck early with direct deposit or reimbursements for all ATM fees. High-yield checking accounts can offer interest rates comparable to savings accounts. For example, in October 2022, Paramount Bank offered an interest checking account with an annual percentage yield (APY) of 2%.
Treasury Bonds, Bills, Notes, and More
U.S. Treasury bonds, bills, notes, and more (sometimes called Treasurys) are fixed-income securities that are issued and backed by the federal government. They are often considered some of the safest investments you can possibly make. These Treasury investments come with maturities ranging from four weeks to 30 years, depending on the bill, note, or bond. They are typically sold in increments of, say, $100 at TreasuryDirect.com. Interest rates will vary, but are competitive with others on this list. For example, a 20-year Treasury bond issued on Sept. 30, 2022, had an interest rate of 3.375%. Like the other options on this list, Treasury bonds guarantee a specific rate of return, so you don’t have to worry about losing money on an investment such as if the stock market is volatile. Additionally, Treasurys are only subject to federal taxes and are exempt from state and local taxes.
Online Savings Accounts
While it’s not technically an alternative, an online savings account is a different type of account than the one offered at your typical brick-and-mortar bank or credit union. An online-only savings account will usually come with many of the same features and rules as traditional accounts, but it historically has offered higher interest rates. That’s because online-only institutions have less overhead, so they’re able to charge less fees. Online savings accounts may also come with perks you can’t find at an old-school bank. However, you must be comfortable with online banking to take advantage of these accounts. You’ll likely need to transfer the money from one bank to another via an online account, although check with the account provider to see if there’s another way to deposit your money. You also won’t have access to in-person services at a local branch, but you may be able to call or chat online with customer service.
