Savings accounts used to be a pretty good place to hide your money; a few decades ago it was not uncommon to offer double-digit interest rates on simple savings accounts. Today, your bank’s high-yield savings account is unlikely to reach even 1%. While there is nothing you can do about the central bank setting its capital rate at historically low levels, you still have some options that can offer you higher returns on your money. Whether you need a place to store your emergency kit or a down payment for a home, finding a low-risk option that pays more than about 1 percent is a real challenge today.
Money market accounts with higher returns
One of the simplest alternatives to depositing money into a traditional savings account is to open a money market account. Money market accounts are insured with the Swiss Federal Deposit Insurance Institution (FDIC) in the same way as regular savings or current accounts.
In addition to paying higher interest rates than normal savings accounts, money market accounts also offer limited current account services. As a rule, there is a relatively small maximum number of cheques that a customer can write to his account each month – typically between five and ten. In return for maintaining this limited payout activity, money market account holders receive a higher interest rate than with traditional savings accounts. For example, a bank offering only 0.09% interest on standard savings accounts could offer 0.20% interest on a money market account.
In addition to the limitation of monthly transactions, money market accounts usually have other restrictions, such as a required minimum opening amount or a minimum balance to be held. If there is a minimum balance requirement and the account falls below the minimum, account holders can only receive the usual lower interest rate offered on regular savings accounts; however, some banks also charge a penalty fee. Before opening a money market or other alternative account, it is important to be aware of the restrictions that apply to the account and to be aware of any fees that may apply to the account.
Money market accounts
Just like a traditional savings account, money market accounts are FDIC insured, so your money is safe. But they offer additional benefits such as higher interest rates and limited current account services so you can access your money when you need it. In most cases, you are limited to 5-10 checks per month, so your withdrawal activity is limited, but the interest rate is higher, so you get a better return. For example, if your bank offers .02 percent interest on a standard saving, they probably offer up to 1.02 percent on a money market account.
There are some other restrictions, such as a minimum opening deposit requirement or maintaining a minimum balance. Lowering your minimum balance requirement could mean that you will earn a lower interest rate or be fined. And if your balance is below your minimum balance for a few months, your account can be converted to a traditional savings account.
PEER-TO-PEER LENDING
If you want to take a more active approach to your savings, you can become a lender through a peer-to-peer credit service such as Prosper and Lending Club. There is a risk associated with this process, but it is mitigated by carefully screening potential borrowers and the fact that you only provide part of a single loan. This means that if a borrower takes out a loan of $3,000, your stake can only be $25. The rest of your personal investment is spread over several loans, so even if one or two borrowers default, you are still unlikely to lose any money. The return on this variety of investments can be more than 10 percent.
Of course, there are many other places where you can invest your money – from Internet savings accounts to municipal bonds to the space between mattress and box spring. Whichever route you choose, you need to understand the risks involved and ensure that your decisions are consistent with your short and long term goals.
Credit associations
Moving your funds to another financial institution can be an easy way to earn more interest. Credit unions are similar to other financial institutions, but usually offer fewer services. Their accounts are federally insured through the National Credit Union Share Insurance Fund, their equivalent to the FDIC.
Since credit unions are non-profit organizations, they usually offer better interest rates on all types of savings accounts, including traditional ones, than other banks. In comparison, you could earn about 1.5 percent for a traditional account instead of .02 percent.
The easiest way to grow your money is through interest and there are several better options than a traditional savings account. The best thing is that you can earn a higher interest rate while still having access to your money and keeping your risk low. And if you have trouble saving because there is not enough room in your budget, consider talking to a financial advisor. Non-profit credit advice is almost always free and can give you some good ideas for reducing your expenses, increasing your income and achieving your goals.
Mutual Bond funds
Investing in bonds and other debt securities is an age-old, conservative way to receive a fixed income from an investment.
Unlike other investment funds, where your money is moved in search of a better deal, your client remains in a bond fund. You will receive monthly dividends that include interest payments on the underlying securities of the fund, plus any value increases in the prices of the bonds of the portfolio.
Bond funds are usually selected for diversification purposes and income generating capacity. This is because they tend to pay higher dividends than money markets and many savings accounts.
They are safe, but not entirely risk-free. These risks are limited by the fact that a bond fund is spread over many bonds. This protects it from the misfortune of a few languishing performers.
Ultimately, the most important part of building your savings is finding a way to maximize the savings you can afford each month. Once you’re in a good groove with saving, you should be your next concern to make your money as much as possible.
With the interest rates where they are today, this means you want to look elsewhere than on your savings account. These five alternatives are a great place to start, if you want higher returns while still maintaining access to your money.
