As the economy slowly recovers from the financial crisis, you may be looking for ways to boost the minuscule interest payments you are earning on your money. Although many different options and strategies for increasing your income stream are available, they may not be appropriate for your situation. Before making any decisions, do research and shop around for the best rates.
Savings accounts
A savings account is the most convenient place to save money whether it is with your local bank or credit union. Most people also have this account linked directly to their primary checking account to make it easy to transfer money to savings. It is important to look at the interest rate you are earning from this account. Depending on where you bank and the type of account you have, the interest rate could be anywhere from less than 1% up to 4% or more. The national average for a basic savings account is about 0.80%. You may find that community banks are offering better interest rates, compared with the big national banks. Visit www.bankrate.com to find the top-yielding bank and credit union savings deals.
Money markets
If you are not satisfied with the interest rates from your savings accounts, consider a money market account. This type of account can serve as your checking account in many situations and can average 3% to 4% interest. If you decide to link your money market account to your checking account, make all deposits to the money market account. Keep the minimum needed in the checking account to avoid fees and transfer money to the checking account only when necessary. A money market account does have restrictions. Because the money held in this account is invested differently, higher balance requirements, a limited number of withdrawals per month or quarter, and a limited number of checks to be written per month may apply.
Checking accounts
An interest-bearing checking account is another option. How much money you regularly keep in your checking account and how often you need to access the money or write checks will help determine whether you will benefit from this type of account. The average interest earned with regular checking accounts is less than 1.5%, with most checking accounts earning 0.5% interest. Although the low rate of return is not going to maximize your earnings even with a high balance in your checking account, some interest is better than none. Keep in mind that most checking accounts that earn interest also charge monthly fees if you do not maintain a minimum balance. This may not be an issue if you always keep a large balance in your checking account.
Local and national banks also offer what is called reward checking accounts. You can earn higher interest (about 4%) with no principal risk. To earn this higher yield, you typically have to make one monthly direct deposit into your account and use your debit card at least 10 times per month. A word of caution: If you cannot meet the account requirements, your interest rate can drop to 0.25%.
Certificate of deposit
If your financial situation allows for locking up some of your money to get a higher interest rate, consider a certificate of deposit (CD). A CD is a time deposit, which means you are tying up some of your money for a specific amount of time before you can withdraw it. If you withdraw early, you will lose interest and possibly principal. This fixed-income investment is most often issued by banks. You can purchase short- or long-term CDs ranging from 1 month to years. This option guarantees a fixed amount of interest, which is added to your account periodically throughout the term of the CD. If you decide to purchase a longerterm CD, you can withdraw the interest payments as they are received.
You may decide that you want several options for saving money depending on your financial situation. Whatever you decide, make sure your money is working as hard as it can and providing you with a return on your investment.