One survey found that 43 percent of Americans have at least $1,000 in savings (and 25 percent have savings accounts topping $10,000). Stashing that cash underneath a mattress isn’t going to earn you king-sized savings. And making deposits to a standard savings account, where interest rates average 0.06 percent annual percentage yield, means missing out on additional interest.
If you want to maximize the returns on your hard-earned cash, it’s important to know the best ways to save money and earn interest.
The best way to earn interest on your savings will depend on a number of factors, including risk tolerance and willingness to lock in funds for a pre-determined period of time but opting to put at least some of your funds into one of these five higher-interest savings vehicles may provide better returns than a savings account.
High Interest Savings Vehicles to Consider
High-yield bank accounts: Like savings accounts, deposits into high-yield bank accounts offer FDIC protection, but offer higher interest rates. (All of the financial institutions included in NerdWallet’s Best High Yield Online Savings Accounts of 2018 paid at least 1 percent interest; some paid 1.5 percent). The higher interest rates do come with some strings, including higher initial deposits; options like ATM networks and mobile apps are often limited.
Bonds: The U.S. government issues bonds, making them the ultimate low-risk investments. Bond certificates, which can be purchased in denominations ranging from $25 to $10,000, are similar to an IOU: Governments “borrow” the money to fund projects and it’s repaid, with interest, when the bond matures. The current interest rate on Series I savings bonds is 2.58 percent. Penalties will be levied for early withdrawal.
Certificates of deposit: Most banks and credit unions offer these FDIC-insured savings vehicles, but the higher interest rates come at a cost: You’ll need to lock into the deposit for a specific time period. Standard periods for CDs to mature are six months, one-year and five years; locking in for a longer period means a higher interest rate. Penalties are levied if you withdraw savings before the CD matures.
Money market funds: These mutual fund investments are made in short-term, low-risk securities. Interest rates aren’t guaranteed and investments are not FDIC insured so it’s important to choose funds carefully. Money market funds can be purchased through brokerage firms and banks. The “no load” investments don’t charge fees for buying or selling funds and can include U.S. Treasury securities like Treasury bills and CDs.
Treasury bills: T-bills are short-term investments backed by the U.S. Treasury Department. You can purchase them in denominations ranging from $1,000 to $5 million. Interest is paid when T-bills mature. (Maturities range from a few days to a maximum of 12 months). Interest income is exempt from state and local taxes but is subject to federal income tax.
Before depositing money into a standard bank account, consider whether opting for a different type of savings vehicle is better suited to your needs — and may net you a higher rate of return than a low-interest savings account.
Talk to your Farm Bureau agent to see how they can help you save while protecting your future.