A good savings strategy can help you build an emergency fund, save for a large purchase and plan for the future. Interest rates are currently high, but they can vary significantly from account to account. So, choosing the right savings product could mean the difference between earning hundreds or thousands of dollars in interest.
While traditional savings and checking accounts offer easy access to your money, they’re not always the best places to grow your funds. Checking accounts generally don’t accrue interest, and traditional savings accounts offer paltry rates compared to high-yield savings accounts, money market accounts and certificates of deposit.
The right savings option for you depends on your financial goals and when you’ll need to access your funds. Here are six ways to earn interest on your savings while minimizing your risk.
Best places to save your money
1. High-yield savings accounts
Most traditional savings accounts offer a measly 0.01% to 0.02% APY, or annual percentage yield. But high-yield savings accounts, typically found at online banks, offer APYs upward of 5%. Your local bank or credit union might also offer high-yield savings accounts with competitive APYs, so be sure to shop around.
High-yield savings accounts usually don’t require a minimum deposit to earn interest, and you’ll have the flexibility to transfer funds to and from the account. The easy access makes it the perfect place for funds you may need quickly or on short notice, such as your emergency fund. Most online banks offer the best high-yield savings account APYs because they have fewer overhead costs and can pass the savings down to you with better interest rates.
Savings accounts have variable APYs, which means when interest rates go up, your account’s APY goes up, too. On the flip side, when interest rates fall, so does your account’s APY.
2. Money market accounts
A money market account — or a money market deposit account — is a hybrid of checking and savings accounts and provides the features and benefits of both. Most MMAs come with check writing privileges, ATM access and a debit card. But you’ll benefit from a better APY than most traditional and high-yield checking accounts.
MMA interest rates may be higher than a traditional savings or checking account — high-yielding money market accounts currently offer APYs between 3% and over 5%. However, MMA rates are typically variable and fluctuate based on market conditions. Like high-yield savings accounts, you’ll often find the best MMA APYs at online-only banks or credit unions.
Note that money market accounts are different from money market funds — a type of mutual fund that invests in highly liquid financial instruments such as cash and US Treasuries.
3. Certificates of deposit
A certificate of deposit, or CD, requires you to put money in an account for a certain amount of time, or term, in exchange for earning a fixed interest rate. Most banks offer terms between six months and five years. During this time, you shouldn’t plan on accessing your funds.
There are different types of CDs to choose from, but most banks offer traditional CDs. With these CDs, you make a one-time deposit (some banks require a minimum amount) when you open the account, and your money earns set compound interest over the CD’s term. As an incentive for locking your assets for the term, a CD may pay a higher interest rate than money market or savings accounts. Typically, the longer your term, the higher your yield. Top-yielding five-year CDs, for example, offer APYs over 4.5%.
If you take money out of a CD before the term ends, you may pay an early withdrawal penalty, typically worth a few months of interest. If there’s a chance you may need the money sooner than planned, it’s better to choose a shorter-term CD, even if it means a slightly lower return, said Bobbi Rebell, a certified financial planner and author of Launching Financial Grownups.
One way to enjoy higher CD rates while ensuring regular access to your funds is to build a CD ladder. With this strategy, you divide your money between several CDs with staggered terms. When one CD matures, you can either withdraw the funds to use or invest them in a new CD with a higher APY.
4. Rewards checking accounts
A rewards checking account provides incentives for opening an account and meeting specific requirements, such as having a certain number of direct deposits or keeping a minimum balance.
Rewards could include a cash bonus, cash back or a higher APY. A high-yield checking account may come with a few extra hoops compared to a high-yield savings or money market account, but it might offer different benefits than other savings options. Most high-yield checking accounts don’t have rates as high as an interest-earning savings or money market account, but you’ll still earn on your day-to-day deposits.
5. Series I savings bonds
In 2022, I bonds reached record-high savings rates of 9.62%, but they’ve since dropped to 5.27% — still a high interest rate. I bonds are savings bonds that earn interest based on a fixed rate and an inflation rate. The interest rates for I bonds change twice a year in May and November. So if you want to lock in an interest rate of 5.27% for six months, you’ll need to buy a Series I bond by April 30.
This interest-earning account is best for very long-term savers who won’t need to touch these funds for five years or more. You can buy up to $10,000 (and as little as $25) in I bonds each year, and you can elect to invest up to $5,000 from your tax return into an I bond, for a potential total of $15,000, annually.
If you have extra emergency funds you want to stash, an I bond is a safe option, according to Michael Ryan, a financial coach with 30 years of experience in the financial planning industry. Since rates may be higher than some high-yield savings accounts, you might be able to earn more with an I bond. But the tradeoff is you can’t withdraw your funds for at least a year.
“You cannot redeem the bond for at least 12 months, and if you redeem it before five years, you lose the previous three months of interest,” said Rebell. There’s also no rush to withdraw your money if you want to continue accruing interest. You can hold I bonds for up to 30 years.
6. Treasury bills
Treasury bills, or T-bills, are one of four types of debt issued by the US government. This debt is used to fund capital projects such as building schools, highways and bridges. When you purchase a T-bill, you’re essentially loaning the federal government money in exchange for earning interest over time.
T-bills are short-term savings instruments that mature in a range of time frames of up to one year and are generally sold in $1,000 increments. If you need to access cash before the T-bill matures, you can sell the note on the secondary market. Because they’re backed by the government, 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 TreasuryDirect auctions or from a bank or broker on the secondary market. When buying directly from the government, the interest rate is set during the bidding process. A noncompetitive bid, the simplest way to purchase T-bills, guarantees your bid will be accepted but doesn’t set the interest rate until the auction closes.
Where is the safest place to store my savings?
Savings, money market, CD and rewards checking accounts are among the safest places for your money, as long as your bank or credit union is insured by the Federal Deposit Insurance Corp. or the National Credit Union Administration. FDIC or NCUA insurance protects your money up to $250,000 per depositor, per insured bank, per account category, in case the bank fails. That said, I bonds and T-bills are backed by the US government, so they’re also considered low-risk.
What’s the best savings method?
To find the right savings option for you, consider if you’ll need immediate access to your money or if you can let your money grow for several years without withdrawing it. Keeping your money in several different savings vehicles — from high-yield savings accounts to CDs and I bonds — can help you capitalize on better rates while providing the flexibility to access cash quickly to cover unexpected expenses.
Here’s what you should keep in mind when deciding between accounts:
- Do you have enough saved for emergencies? Before choosing any long-term option, make sure you have enough money stashed in case of emergencies. Most experts recommend keeping three to six months of expenses saved. The money can go in a high-yield savings or money market account for easy access if you need it. Tying your emergency savings up in a long-term account can be detrimental if it’s the only cash you have.
- What’s your time horizon? Depending on your savings goal, you may not need the money for a few years and can take advantage of a long-term option with a good APY. For example, if you plan to buy a house in five years, you may choose an I bond or CD to avoid touching the money or to earn a better rate. If you need the money sooner, you may want to choose a short-term option with more flexibility.
- How much time do you want to put in? Some savings strategies require more work than others. For instance, a CD ladder requires you to set reminders for when each account matures and research where the funds should go next. If you’re not chasing yields but still want to earn interest, you may choose an option that lets you “set it and forget it” by focusing on depositing money instead of finding the best rate.
When you’re ready, find a bank with the features, services and perks that work for you. For instance, you may prefer mobile banking or need ATM access to deposit cash into your savings account regularly. Also, research various options and financial institutions, such as local banks and credit unions, for the best rates and fewest fees.
Also, keep an eye out for bank bonuses that reward you for opening a new account. While you should make sure the account is a good fit for you in general, a bonus may be the deciding factor when comparing similar accounts.