Have you ever looked at your monthly bank statements and laughed at the three pennies your earned that month? Yeah. It’s pretty pathetic. What’s even more silly is when you then get 1099’d at the end of the year by the bank for your $0.50 you earned. It makes that earning almost feel like a penalty when you then have to turn around and share it with the IRS. And yes, the official law is that you must report earnings $0.49 and above.
For years I’ve heard that there are better places to put my money than just a regular big bank savings account. However, I never quite knew where to start looking and so there my savings sat, doing nothing for me.
I decided to research where I could put my cash savings to earn more than the measly 0.04% offered by my bank and I found an overwhelming set of options. I’m hoping that my research will help you weed through the choices out there and find a perfect place for your own savings.
Below, I’ll break down some different types of account options.
Traditional savings account
Not much better than a shoebox under your bed, most traditional savings accounts earn you last than one percent per year. Mine was a laughable 0.04% per year, just about $4 annually on $10,000.
High Yield Savings
Currently, it looks like the best rate out there is just about 1.85%. Not awesome, but also a whole lot better than your traditional savings. 1.85% of $10,000 is an extra $185. And that doesn’t account for the monthly compounding that occurs (some complicated math here, but it works in your favor), so your outlook is even brighter than that.
Money Market Account
Similar to high yield savings accounts, 1.85% to 2% seems to be the best rate out there for money market accounts, and is offered with several different companies. Sometimes these accounts can have higher minimum balances, so depending on how much cash you have, that can help determine if this is the right place for you.
Money Market Fund
You would think they could come up with a different name for these two very different accounts…. a money market fund is not to be confused with a money market account (above).
Often times when you have a brokerage account for buying and selling stocks, this is where your uninvested funds live. The account is usually invested in fairly conservative mutual funds that make a pretty decent rate of return. The problem here is, a money market fund can lose money too. And it’s not FDIC insured, so if you really want certainty and protection from financial crisis, this isn’t your best way to go.
If you’re sitting on some funds that you know you won’t need for a given period of time, this is really the best return for your $$. Usually have terms between a few months and 5 years with an APY ranging between 1 and 3% for anything over a year. However, the big caveat here is knowing that you won’t be able to touch the money for the given duration.
When you do make a selection of where to place your savings, do a quick search on offers that the company you’ve selected may be offering for new customers. I was able to snag a $200 bonus when I opened my account.
A bit of a buzzkill. The biggest problem with keeping your money in any kind of savings account is inflation. Typically, we see an inflation rate of about 3% per year, so when you’re earning anything less than that, your cash is actually losing value.
However, it’s totally understandable that you wouldn’t want to have all of your assets tied up in the stock market. So, it’s definitely a good idea to make the most of your savings where you can. If you’re only seeing pennies a year on your savings, you can do better!
The good part about rising interest rates. As interest rates rise, we should also see some of these interest rates offered at banks rise, which can offer better opportunities for higher yields in savings, so keep a lookout for even more favorable rates than what I’ve mentioned here.
I wish I had considered all of this when I was saving for a house a few years ago. And I hope for those of you who are in that position now, whether you’re saving for a house, a car, a wedding…. make the most of your cash and earn some interest on it!