Savings accounts are an excellent way to save money, earn small amounts of interest, and remain safe from volatile investments. However, there are several alternatives to savings accounts that you can explore if you’re looking to make your money work a little harder for you. In this article, we’ll explore the various richer alternatives to savings accounts which could offer higher returns than traditional savings products.
What is a Savings Account?
A savings account is a type of deposit account which offers safety and generally provides a low rate of return and easy access to your funds. Savings accounts are generally targeted towards individuals who want to save money and earn a minimal rate of return. Your money is insured by the Federal Deposit Insurance Corporation (FDIC) and every major bank offers savings accounts to its customers.
Why Do We Need Richer Alternatives to Savings Accounts?
Although savings accounts are an excellent place to park your spare cash and save for the future, given the current interest rate environment, where the average Annual Percentage Yield (APY) is hovering near zero, it’s important to consider alternatives that can offer a slightly higher return than traditional savings products. There are a variety of other savings and investment options which could be worth exploring.
Richer Alternatives to Savings Accounts
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High-Yield Savings Accounts
High-yield savings accounts are a great way to earn more than a traditional savings account without taking on any additional risk. High-yield savings accounts offer an APY far above the national average, which can be as high as 2.6%. However, if you’re looking to earn more than that, then you should consider other options. -
Money Market Accounts
Money market accounts (MMAs) offer an interest rate higher than a traditional savings account and an easy way to access your funds, albeit with slightly more restrictions regarding withdrawals. The APY for money market accounts can range from 0.15% – 1.00%. -
CDs (Certificates of Deposit)
Certificates of Deposit (CDs) allow individuals to lock away their funds for a fixed period of time in order to earn a slightly higher rate of return than a savings account or money market account. CDs usually have terms that range from 91 – 606 days and APYs that range from 0.05% – 2.50%. -
Treasury Bills
Treasury bills are short-term debt instruments which offer an excellent way to earn a higher rate of return with minimal risk. Treasury bills have maturities ranging from 4 weeks – 52 weeks with APYs that range from 0.01% – 0.06%. -
Peer-to-Peer (P2P) Lending
Peer-to-peer lending is a form of debt financing where individuals can lend money directly to other members at an agreed mid-market rate. Rates can vary widely depending on the risk associated with the borrower, but they tend to be anywhere from 5% – 20% annually. P2P lending has become increasingly popular in recent years in part due to the low-interest rates offered by banks. -
Real Estate
Real estate investments can help diversify your portfolio and earn a higher rate of return. Real estate investments provide benefits such as tax savings, cash flow from rentals, and potential appreciation over time. While real estate investments can provide a great return, they are illiquid and require significant time and effort to maintain. -
Stocks and Mutual Funds
Stocks and mutual funds provide the potential for higher returns, but also comes with greater risk than traditional savings products. Stocks enable you to buy shares in individual companies, but the value of your investment can change frequently due to stock market fluctuations. Mutual funds also offer the potential for higher returns, but they are more diversified and offer a layer of protection against market losses. -
Cryptocurrency
Cryptocurrencies such as Bitcoin offer an alternate way to save and invest. Cryptocurrencies are highly volatile, and the values of different coins can move dramatically in a short period of time. Investing in cryptocurrencies should only be done if you are knowledgeable about the asset class and are comfortable with the volatility and risk of loss involved.
Savings accounts are an easy and safe way to save and earn a small rate of return, but there are alternatives to savings accounts that offer the potential for a slightly higher return. Some of these options include high-yield savings accounts, money market accounts, CDs, treasury bills, peer-to-peer lending, real estate investments, stocks and mutual funds, and cryptocurrencies. When considering any of these options, it’s important to understand the amount of risk associated with them and to make sure you’re comfortable with the potential for losses.
