How to make more interest on your money with very little effort
Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.
- Bank account interest rates dropped last March when the Fed lowered its rate to near zero.
- You may be able to increase returns by opening a high-yield account at a bank or credit union.
- Other options that may pay more than you’re earning now include money market accounts and CDs.
Are you earning next to nothing on your savings right now? If so, you’re not alone.
Last March, the Fed rate dropped to near zero in response to the COVID-19 pandemic. And it didn’t take long for bank accounts to respond by lowering their yields as well. The national average interest rate on savings accounts is now a sad 0.07%, according to the FDIC.
So what can you do to earn more interest on your money? If you won’t need to withdraw the funds for several years, investing it in the stock market may offer the highest potential return. Market volatility, however, makes most stock and fund investments too risky for money you may need soon.
If you’re looking for a low-risk place to park your cash that pays more interest than your existing bank account, you have options. Here are six strategies worth considering.
Some of the best checking accounts even offer rewards, which further increases how much you can earn on your money.
2. Join a credit union
On average, credit unions tend to offer slightly better interest rates than banks.
Since credit unions are owned by their members, they tend to have lower fees as well. To join a credit union, you’ll typically need to live or work in a certain geographic area or work for a certain employer.
3. Take advantage of bank welcome bonuses
While not necessarily a way to earn interest on your money, bank account bonuses are a way to earn money with your money.
Many banks are currently offering cash bonuses of $200 or more for customers who open new checking accounts. For perspective, it would take you two years to earn that much money in interest on $10,000 in deposits at a 1.50% annual yield.
You may need to set up direct deposit and/or keep your account open for a certain number of months to earn the bonus. But it could still be a great way to boost the income you earn on your bank deposits.
4. Consider a money market account
Unlike money market funds, money market accounts are FDIC-insured deposit accounts offered by banks.
Money market accounts are similar to traditional savings accounts in that you can’t make more than six withdrawals or payments from the account per month. But they may come with debit card and check-writing privileges as well.
Most importantly, some banks may be willing to offer higher interest rates on a money market account than their traditional savings accounts.
5. Build a CD ladder
Certificates of deposit (CDs) offered by banks or credit unions tend to offer higher interest rates than their savings and money market accounts. And those interest rates are fixed.
But in exchange for these benefits, CDs require that you keep your money in the account until its maturity date, which could range from a few months to several years. And if you withdraw your funds early, you’ll typically be charged an early withdrawal penalty.
This lack of liquidity can make CDs seem like a less attractive choice for savers. However, with a CD ladder, you divide your total deposit amount into smaller deposits that are invested in multiple CDs with varying maturity dates.
With a CD ladder, you can take advantage of the higher rates that CDs offer without tying up your entire savings balance for multiple years. Learn how to build a CD ladder for yourself.
6. Invest in a money market mutual fund
If you’re looking to gain exposure to other low-risk investments like Treasury bills or bonds, you may want to consider investing in a money market mutual fund. Money market funds are a special type of mutual fund that only invests in short-term, highly liquid securities.
With a heavy portion of these funds invested in cash equivalents, they aim to keep a net asset value of $1 per share. But while money market funds may offer low volatility, it’s important to understand that they are not insured by the FDIC like bank deposit accounts.
However, their returns could exceed the average checking or savings account. And their focus on government securities could offer tax advantages.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
Source: Read Full Article