Saving money is central to any plan for achieving personal financial well-being. It gives you incredible financial power, including the ability to fund future goals and weather life’s unexpected events. Nonetheless, figuring out where to save money can be challenging, especially with endless options available in person and online. Below are the five best places to save money and earn interest.
1. High-yield savings accounts
A high-yield savings account is a deposit account that offers a higher interest rate than traditional savings accounts. Your bank might require a higher opening deposit and limit the number of transactions you can make, with some charging if you exceed a certain number of monthly withdrawals. However, in exchange for less liquidity, you typically get a higher interest rate than you can earn with checking accounts. A high-yield savings account is a good place for your emergency fund.
2. Interest-bearing checking accounts
An interest-bearing checking account is a checking account with an annual percentage yield or APY that earns interest. It allows you to deposit money via direct deposit, bank transfer, or ATMs. Unlike traditional checking accounts, interest-bearing checking accounts reward you with interest. You don’t have to worry about transaction limits or how often you make withdrawals. Your bank may require a minimum balance and potential maintenance fees. In most cases, interest rates on interest-bearing checking accounts are low. These can be good accounts if you save for short-term goals, like a vacation or a new appliance.
3. Money market accounts
You may consider a money market account if you want higher yields than typical savings or checking accounts but still want convenient features, like a debit card or check-writing privileges. Available through banks, credit unions, and online lenders, these accounts are usually interest-bearing. Nonetheless, most money market accounts require you to make a large minimum deposit and charge monthly maintenance fees. You may be limited to specific transactions and withdrawals from a money market account to six per month.
4. Certificates of Deposit (CDs)
CDs allow you to easily determine how much you’ll earn in interest over time and usually offer higher interest rates than traditional savings or money market accounts. CDs comes with a fixed term length and fixed withdrawal date, known as the maturity date. If you open a CD, you’ll lock your funds in for a term ranging from three months to five years or more. While you won’t have to pay monthly fees, there is an early withdrawal penalty for accessing your money before the maturity date.
5. Treasury bills
Treasury bills, or T-bills, are one of four types of debt issued by the US government. When you purchase a treasury bill, you essentially loan the federal government money to earn interest over time. Because the government backs them, T-bills are generally secure, low-risk investments. All earnings are exempt from state and local taxes, which may prove attractive to those living in states or cities with high tax rates. There are two ways to purchase T-bills – directly from Treasury Direct auctions or a bank or broker on the secondary market.
Conclusion
Selecting your saving plan based solely on the highest advertised interest rate is not the wisest approach in most circumstances. The best places to put your money vary depending on your savings goals and timeline, among other factors such as safety and liquidity. Keeping your money in several different savings vehicles will let you capitalize on better interest rates while providing the flexibility to access cash quickly to cover unexpected expenses.
Key Takeaways
- High-yield savings accounts
- Interest-bearing checking accounts
- Money market accounts
- Certificates of Deposit (CDs)
- Treasury bills
