You work hard to earn money at your job, business, or side hustle. Some people make money through all three of those methods, but how much is your money working for you? Savings accounts give your idle cash the opportunity to grow. You can use the interest from your savings account to cover everyday expenses, pay for a trip to your friend’s upcoming wedding or maybe even save for an emergency or your next vacation. But not all things are created equal. Some savings accounts are better than others, and getting the most yield increases your passive income.
How to find the best savings account for you
Consumers should look at many savings accounts before choosing one for their cash. Patiently looking at the choices can help you secure a higher yield instead of sticking with the most convenient option.
1. Understand the different types of savings accounts
Some types of savings accounts are better than others. Knowing the differences can help you determine the right account for your needs. Once you know which account you want, it’s possible to look for higher yields for your preferred type of account. Below are a few.
Traditional savings accounts
Traditional savings accounts have the most liquidity because there is no lockup period. Most banks let you make withdrawals from this account when you need to, but they could have a fee in place after so many withdrawals in a month. You may also end up with a low-interest rate, typically a 0.42% annual percentage yield (APY). These types of accounts may not earn you much.
High-yield savings accounts
A high-yield savings account, sometimes called a high-interest account, is like a traditional savings account. You can access money whenever you need it, but the difference is you could get a higher interest rate on your savings. It’s possible to get a rate that is 12 times higher than the national average. High-yield savings accounts have variable interest rates. A variable or fluctuating rate means your payments are not set in stone. The interest payment you earn this month may not be the same as the one you earn next month which in some cases, could be even higher. On the flip side in some cases, you might have to make a higher deposit to open the account.
MoneyLion offers a convenient marketplace to compare high-yield savings accounts from our trusted partners that could help grow your money.
Money market accounts
Money markets give you exposure to short-term bonds and other cash equivalents. These accounts provide higher yields than traditional savings accounts, and you have flexibility in how often you withdraw funds. These accounts have variable interest rates. Money market accounts have checking account privileges, such as the ability to write checks.
Certificate of deposit (CDs)
Certificates of deposit offer some of the highest interest rates but also lock up your money. Most CDs have early withdrawal fees or penalty fees if you need to withdraw your cash before the term period ends. It’s best to use this type of savings account for funds you won’t need for six to 18 months. Unlike the other choices on this list, CDs have fixed interest rates. That means you know how much you will earn from the CD if you hold onto the account until expiration. The interest rate impacts how much you earn, and if it fluctuates, your monthly payments will also fluctuate. CDs do not go through this fluctuation since they have fixed rates.
2. Research and compare interest rates
After reviewing the different types of savings accounts, the next step is deciding on the right account for you and researching your options. See what interest rates banks or financial apps offer for savings accounts, money market accounts, or CDs. You can also do this research for traditional savings accounts, but the interest on those accounts is typically minimal. It’s better for most people to invest their efforts in comparing interest rates for the other three types of savings accounts that can help you maximize your earnings, such as high-yield savings. But you should also look at the terms and check for applicable penalties.
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3. Consider convenience and accessibility
Some banks or financial apps offer no-penalty CDs, which let you withdraw funds without paying a fee. These CDs have lower interest rates than the ones with penalties, but this flexibility may be worth a few basis points on your interest. Consumers who expand their search to online banks instead of relying exclusively on traditional banks may find higher interest rates, faster application processes, 0% APR cash advances, and better overdraft protection.
4. Look for benefits and additional features
It is a good idea to check whether there are any extra features that can help you with your savings goals. For example, some accounts let you set up automatic savings plans, which make saving easy and keep you on track. Some accounts allow users to create sub-accounts for different goals. These virtual accounts can make your savings more organized.
Read our blog on Benefits of Savings Accounts for more information.
5. Research the bank or financial institution
The institution you save with should be stable, have a good reputation, and offer quality customer service. A reputable institution will give you the confidence to save more knowing that your money is in good hands. The institution will offer Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance on deposits, should the financial institution fail.
6. Read the terms and conditions
Before making your final decision, ensure that you read and understand the terms of the savings account. Pay attention to details like the minimum deposit required, limits on transactions, and any penalties that may apply.
Choosing the best savings account for you
Banks offer many savings accounts, and the choices become more abundant if you look at several financial institutions’ offerings. It’s important to choose the best savings account that aligns with your goals.
People who want liquidity and high interest rates may want to consider high-yield savings accounts. If consumers also want checking account compatibility with those accounts such as debit cards and check writing, a money market account can be a great choice. People seeking the highest interest rate and predictability but can leave their money locked for a specific amount of time could go with a CD. But a CD is only a good idea if you don’t need the funds for a while.
Once you figure out the right account for your needs, you can then filter your search to convenient banks that have the highest interest rates.
MoneyLion offers a convenient marketplace to compare high-yield savings accounts from our trusted partners that could help grow your money. These offers can help you kick off your savings!
Tips for maximizing savings
Maximizing your savings reduces financial stress and gets you closer to a smooth retirement. You can apply these tips to grow your savings account and collect more interest each month.
1. Automate savings deposits
You can automate money transfers from your checking account to your savings account. It’s also possible to set up direct deposits for a portion of your paychecks so they end up in savings. Automating savings deposits keeps it out of sight and out of mind. You can feel more confident knowing that your savings account is growing in the background.
2. Track spending with the convenience of one app
An out-of-sight, out-of-mind approach has its limits. You may spend more money than necessary if you don’t keep track of your expenses. Several budgeting apps make it easy to track your spending across several categories. Many banks have built-in budgeting features that give you a snapshot of your spending. Tracking something makes improvements more predictable and likely.
With the MoneyLion app, you could link your accounts and see your finances in one convenient place for better financial management.
The ability to link a bank account to your MoneyLion app depends on the institution. Some banks have connectivity or network issues that prevent account links from taking place.
3. Find ways to eliminate spending
Eliminating spending accomplishes two critical objectives for people who want to build their savings accounts. Removing an expense item puts more money in your pocket that can go into your savings. But it also reduces your monthly expenses. You won’t need as much cash flow from interest and investments to cover your lifestyle if you minimize your costs.
If you have never done this before, you might end up saving hundreds of dollars after discovering unused subscriptions and other money drains. This strategy has its limits because you still have to cover necessities, but this process can provide a quick win.
4. Create passive income streams
If you can generate passive income from easy side hustles, that’s a huge win. Recent technology has opened the door to new ways to earn money without constant active involvement, providing financial freedom and flexibility. One option is creating and selling digital products like e-books, online courses, or stock photography. A successful blog or website with affiliate marketing could initiate a stream of passive income. A more traditional way to gain passive income is to invest in real estate properties and rent them out.
With apps like Kashkick, you can create additional income while having fun by doing surveys and playing games.
Get Your Money to Work for You
You don’t have to do any extra work to earn money from a high-yield savings account. The money comes effortlessly after you do the initial research and compare your choices. The cost of living will always increase, and high-yield savings accounts make it easier to keep pace and have more funds available in the future.
Should I go for a government-backed savings account like a Treasury bond?
A government-backed savings account provides guaranteed returns. It could be better than leaving your money in a bank account with a low-interest rate.
Are there any risks associated with choosing a savings account with a higher interest rate?
Some bank accounts with higher rates have penalties if you withdraw money too early. If you keep the money in your account and barely touch it, the risks are minimal. Look for bank accounts that are insured by the FDIC.
Can I switch savings accounts if I find a better option for earning money?
You can switch savings accounts if you find a better option for earning money. Check the terms to make sure there aren’t any penalties for switching accounts.