Americans are keeping more of their savings in deposit accounts, with the latest federal data showing total bank deposits rose 6.8% last year to $11.6 trillion.
Deposit accounts offer safety, which has been attractive since the 2008 financial crisis, and for many cash holders, safety has been far more important than interest rates. But even though we remain in a low-interest-rate environment, it doesn’t take much work to earn significantly more interest than the near-zero percent average bank accounts have been earning for the past decade. Here are four tips to maximize your interest rates on checking, savings and CDs.
High Yield Reward Checking Accounts
Replace a standard checking account with a high-yield rewards checking account for a higher interest rate. Each of the past 10 years, high-yield reward checking accounts have grown in popularity. There are now nearly 1,000 of these checking accounts offered, mostly by community banks and credit unions, across the country.
Most High Performance Rewards checking accounts are free with no monthly maintenance fees, regardless of account balance or activity. Qualifying for high yield requires regular activity for a primary checking account, such as making debit card purchases and setting up direct deposit. Customers who meet these requirements are rewarded with a return of up to 5%. The balance that earns this high rate is usually limited to between $10,000 and $25,000.
Internet savings accounts
Replace a savings account at a brick-and-mortar bank with one internet savings account. These accounts offer interest rates seven times higher than the average old-school account rate. Also, Internet savings accounts have responded more quickly to Federal Reserve rate hikes.
Internet savings accounts are useful for those who may not be able to switch to a high-yield rewards checking account or who have large savings that exceed the rewards balance limits. Many Internet banks make it easy to link a checking account from another bank to an Internet savings account. Once linked, it’s easy to transfer money between accounts.
Important Features for Internet Savings Accounts
Avoid Internet savings accounts with minimum balance requirements or weak electronic funds transfer capabilities. If depositors need money for an emergency, they don’t want to worry about having to maintain a minimum balance to avoid a fee. Also, they don’t want to wait several days for a slow electronic funds transfer service to move money into the checking account.
CDs with small early withdrawal penalties
CDs with five-year terms and small early withdrawal penalties offer the best alternative to Internet savings accounts. Today’s best five-year CDs offer interest rates more than a percentage point higher than the best savings accounts. Unlike savings accounts, CDs have early withdrawal penalties if the money is accessed before maturity. Choosing CDs with small penalties can minimize the downside of early withdrawals. For five-year terms, small withdrawal penalties are six months’ interest or less. If you’re unlikely to need the money before a year, this strategy of using five-year CDs with small withdrawal penalties makes more sense.
The bottom line? Interest rates may rise, but depending on the Fed and the economy, the increase will likely remain gradual. That shouldn’t deter Americans from trying to make more of the cash they need for emergency funds or short-term goals. With just a little work and knowledge, it’s easy to earn a lot more interest.
Ken Tumin is founder and editor of DepositAccounts.comwhich has been tracking and rating savings, CD and checking account offerings from banks and credit unions for more than a decade.
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