The whole point of keeping your money in a savings account is to safeguard your savings while earning interests. However, a majority of the banks in the United States offer an interest rate of 0.01 percent. In simpler words, if you keep 10,000 USD in a savings account, you are only going to get a dollar as interest. Wouldn’t it be nice if banks offer higher interest rates?
Your current bank might be offering a small fraction of 1 percent interest per annum, but that’s not the only option you got. Plenty of high-yielding options for savings accounts offer as high as 1.55 percent interest on your savings. You heard that right. Online banking options such as Synchrony, Ally, and iGoBanking can offer up to $155 annual interest on a deposit of 10,000 USD.
A relatively higher interest rate of nearly 2% (or even more) on savings accounts won’t be enough to beat inflation. However, if you are piling your hard-earned money into a savings account, it is wiser to put it somewhere that offers higher interest rates. Before making any decision, know these things about high-interest savings accounts:
High-yielding savings accounts options
It is quite evident why online banks deliver 155 times more interest than the standard American banks. Since they operate online, the banks do not need to recruit a large number of people to run thousands of branches. Their operating expenses are lower than all the bigger banks like Chase and Wells Fargo.
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However, there’s a catch in this. If you want to access the money kept in those high-yielding savings accounts, you have to wait for a couple of days. If convenience is your priority, you should stick to the bigger banks. With the big banks, you get instant access to your money through thousands of ATMs scattered across the country.
Certificate of deposit (CD):
A certificate of deposit (CD) offers higher interest rates than online banks. A CD is also a savings account option that offers a higher rate of interest with a fixed date of withdrawal. But again, it’s not as convenient as the standard American banks. If you deposit your money in a CD, you need to wait for quite a few days to gain access to your money.
In case you decide to withdraw your money earlier than the date of maturity, you need to pay the penalty. However, if you can wait for the decided number of days and let your money sit in that account, you can earn up to 2 percent of interest. That’s a lot of money if you compare it to the 0.01% interest.
Here’s why you should make the most of high-interest savings accounts
- Promising stats: According to a report published in CNBC, the interest rates for CD grows further with time. If your CD offers 1.75% interest for one year, it can reach 2.05% for three years and 2.45% for five to ten years of savings. It is evident that you are actually losing a good amount of money by not investing in these high earning savings options.
- Option to enjoy the best of both worlds: Renowned financial experts are of the opinion that you should keep a certain amount of money in the low-earning account and withdraw money anytime. You should keep the major portion of your money in online banks or CDs for higher interest rates. This way, you will be able to fulfill both your concerns. The only issue is that you have to manage multiple accounts at the same time.
- Zero fear of Inflation: Managing two accounts is far better than receiving no significant return after keeping your money at the local bank for several years. Now that the inflation rate is nearly 2%, you are actually making a mistake by keeping your money at an account that isn’t yielding significant returns. Higher interest savings options allow you to stretch your budget as you earn more money from your savings.
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A 10-year-old can easily tell that putting your money in a high-yielding savings account is more profitable. Then why isn’t everybody doing that? The reason is quite simple. For most Americans, higher returns are not the only criteria when it comes to using a savings account. Some people also look for the convenience of accessing their money at any given point.
When you are using a high-yielding savings account, you are losing the convenience to use your money at your will. You may need to do a fair amount of research and analysis, just the way a law student does before he/she begins with law dissertation writing.
Even though experts suggest you to explore different savings options for better returns, they usually advise you to treat it as a short-term savings goal and not as a long-term investment strategy. In case you are looking for long-term investment plans, the retirement savings account options such as 401(k) and IRA are worth investing. You can even consider ETFs (exchange-traded funds) and low-cost index funds as well. Since it is all about finances, it is a good idea to consult with an expert before you make a decision.