Having your money in a traditional savings account typically isn’t the best way for it to grow. Sure, it’s safe and easily accessible, but you may have the opportunity to earn more interest on your savings if you move it to another type of account. Here are three ways you can earn more interest on your savings and still keep your funds safe.
Switch to an online savings account.
Online banks don’t have the expenses of traditional brick-and-mortar banks, so they can afford to pay a little bit more interest than the traditional bank. You can typically find high-yield savings accounts paying annual percentage yields of 1% more. While it may not seem like very much, it’s much higher than the .05% you’d often find with a traditional bank. The only downside is that you won't be able to go into a bank branch to withdraw funds. Many banks give you an ATM card to withdraw money quickly. Of course, that means paying an ATM fee. If you can afford to wait, a bank transfer may be the least expensive way to get funds from your online savings account.
Put more money in your savings account with the highest yield.
Since interest is paid as a percentage of your account balance, obviously having more money in the savings account with the highest yield will allow you to earn more interest. If you have your money spread out among different savings and checking accounts, especially those that with a low yield or that don't pay interest at all, it will benefit you to consolidate these accounts and put as much money as you can afford into a single online savings account with a highest yield.
Another tip: look for a savings account that compounds interest daily. You’ll earn more interest than if your interest compounds monthly or quarterly. It makes a difference as your savings account balance grows to more than five figures.
Buy a CD.
A certificate of deposit, or CD, is another way to earn more interest on your savings. When you buy a CD, you agree to keep your money deposited for a certain amount of time, anywhere from three months to five years. In exchange, the bank pays a higher interest rate on your savings. Once the CD matures, you can withdraw your money plus the interest you’ve earned or you can choose to rollover for another term and continue earning interest. Some CDs have minimum investment amounts and most charge an early withdrawal penalty if you pull your money out before the CD matures.
A CD isn’t a good place for your emergency fund, since you’d be penalized for withdrawing your money too early. Some banks do offer penalty-free CDs, but these may not have the most competitive interest rate.
When you're considering the best place for your savings, find the right balance between earning the highest yield and keeping your money accessible enough that you can get to it quickly (and penalty-free) if you need to.