Most of us see banking as little more than an essential financial service, a need more than a want, and a chore more than an opportunity to turn a profit. However, there are strategic ways for keeping cash in a bank that can truly pay off.
Let’s dig into the four ways you can make money simply by banking. These savvy moves are pretty easy to make – and they're especially important for people who aren’t ultra-wealthy.
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1. Put Your Emergency Savings in an High-Yield Savings Account
A high-yield savings account (HYSA) is a key way to make money via a bank account. Not taking advantage of an HYSA usually equates to leaving your cash stalled out in a traditional, low-yield savings account.
Some banks are currently offering as high as 4.50% APY on cash in HYSAs, per Fortune – a great deal more than the national average national rate of 0.62%. It’s usually no-brainer to opt for an HYSA, but note, many HYSAs have minimum balances that need to be maintained or in order to keep getting the max APY.
2. Put Cash You Don’t Need Soon in a Certificate of Deposit
A certificate of deposit (CD) is a great way to make money off your savings (often more than you can with an HYSA), but the key here is only to stash cash you’re absolutely certain you won’t need to access for months or even years, as CD’s enforce only offer a fixed interest rate if you commit to a fixed term.
Often, the longer you agree to keep your money in that account, the higher APY you’ll make. So, committing to, say, a 1.5-year term could generate 4.50% interest, whereas a six-month commitment could be a lot lower, perhaps around 3.95% APY. And bear in mind that breaking your commitment and accessing cash before the fixed-term is met, usually results in a penalty.
3. Opt for Online Banks Over Brick-and-Mortar
Online banks are still relatively new, but they’re growing in popularity because they offer higher APYs than traditional brick-and-mortar banks. They’re able to provide higher APYs because they don’t have to cover the costs that come with having a physical location and the in-person staff that comes with them.
4. Consider Treasury Bills for State Tax Savings
Not all banks sell Treasury bills (T-bills), but most legacy banks (like Chase and Bank or America) do, and investing in these can potentially make you more money than an HYSA if you live in a state that imposes a personal income tax, per the IRS.
Why? Because unlike interest generated from HYSAs and CDs, you only have to pay federal taxes on interest earned. Interest generated from HYSAs and CDs are subject to both federal and state taxes, resulting in less bang for your buck.
5. Only Use a Bank That Has FDIC Insurance
Now this tip isn’t so much about making money, it’s about how to not risk losing money – which is just as important as making money simply by banking.
“Your cash should always be protected, so make sure whoever you are banking with is offering full FDIC,” said Kelly Brown, founder and CEO of Ampersand.
Check the fine print to ensure your bank provides no less than $250,000 in FDIC insurance.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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