Alternatives to High Yield Savings Accounts & Their Benefits
Alternatives to High Yield Savings Accounts & Their Benefits
Alternatives to High Yield Savings Accounts & Their Benefits
Alternatives to High Yield Savings Accounts & Their Benefits
February 22, 2024
February 22, 2024
February 22, 2024
February 22, 2024
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High yield savings accounts have been a popular choice for many savers over the years. They offer a much more appealing interest rate compared to the average 0.47% interest rate on a normal savings account, according to a recent FDIC report.
While they’re an attractive option for people who want to keep their money liquid, the yields on high yield savings accounts have become less competitive as of late. People continue to look elsewhere to grow their financial wealth.
Read on to learn about ten alternatives to high yield savings accounts that you might want to consider.
1. Certificate of Deposit (CD)
Certificates of deposit are one of the more common alternatives to a high yield savings account. If you’re somebody who doesn’t need access to your funds immediately, they can be a great option for you.
One of the benefits to opening a CD is that they come with fixed terms, so the interest rate will never decrease during its duration. CDs usually offer higher interest rates than a traditional savings account.
Depending on the terms you decide to go with, CD’s can range from a few months to several years. CDs that have longer terms will generally offer higher interest rates, so if your money goals are for the long run, a CD can be perfect for you.
The one downside to CDs is you can't withdraw your money before the maturity date without paying a penalty but some financial institutions have no-penalty CDs as an option.Certificates of deposit are one alternative to a high yield savings account.
2. Money Market Accounts
Money market accounts offer higher rates than traditional savings accounts and are typically more flexible than CDs. Given the ability to write checks, money market accounts are an ideal option for those looking to have access to their funds immediately.
On the other hand, these accounts may have more restrictions on withdrawals, such as a maximum number of withdrawals you can make per month. Money market accounts also may require you to maintain a minimum balance in your account.
Be sure to compare the interest rates and any fees associated with money market accounts before you decide to move on with one.
High yield savings accounts have been a popular choice for many savers over the years. They offer a much more appealing interest rate compared to the average 0.47% interest rate on a normal savings account, according to a recent FDIC report.
While they’re an attractive option for people who want to keep their money liquid, the yields on high yield savings accounts have become less competitive as of late. People continue to look elsewhere to grow their financial wealth.
Read on to learn about ten alternatives to high yield savings accounts that you might want to consider.
1. Certificate of Deposit (CD)
Certificates of deposit are one of the more common alternatives to a high yield savings account. If you’re somebody who doesn’t need access to your funds immediately, they can be a great option for you.
One of the benefits to opening a CD is that they come with fixed terms, so the interest rate will never decrease during its duration. CDs usually offer higher interest rates than a traditional savings account.
Depending on the terms you decide to go with, CD’s can range from a few months to several years. CDs that have longer terms will generally offer higher interest rates, so if your money goals are for the long run, a CD can be perfect for you.
The one downside to CDs is you can't withdraw your money before the maturity date without paying a penalty but some financial institutions have no-penalty CDs as an option.Certificates of deposit are one alternative to a high yield savings account.
2. Money Market Accounts
Money market accounts offer higher rates than traditional savings accounts and are typically more flexible than CDs. Given the ability to write checks, money market accounts are an ideal option for those looking to have access to their funds immediately.
On the other hand, these accounts may have more restrictions on withdrawals, such as a maximum number of withdrawals you can make per month. Money market accounts also may require you to maintain a minimum balance in your account.
Be sure to compare the interest rates and any fees associated with money market accounts before you decide to move on with one.
3. Municipal Bonds
Municipal bonds are debt securities that are often used to fund schools, hospitals, and the construction of roads. Issued by local governments they offer tax-free income.
Municipal bonds come with fixed terms, ranging from a few years to several decades, and offer higher yields than many savings accounts. They’re an excellent option for those who have a high income and want to invest in a tax-efficient manner.
However, municipal bonds do come with some risks. Since they’re not FDIC-insured, there’s the possibility of default. This means that the interest payments are fulfilled on time.
3. Municipal Bonds
Municipal bonds are debt securities that are often used to fund schools, hospitals, and the construction of roads. Issued by local governments they offer tax-free income.
Municipal bonds come with fixed terms, ranging from a few years to several decades, and offer higher yields than many savings accounts. They’re an excellent option for those who have a high income and want to invest in a tax-efficient manner.
However, municipal bonds do come with some risks. Since they’re not FDIC-insured, there’s the possibility of default. This means that the interest payments are fulfilled on time.
4. Cash Management Account
Cash management accounts are typically online managed accounts where you can put your cash, receive competitive interest rates and take your money out as needed.
You may ask, “Isn’t that just a bank account?” While it seems very similar, cash management accounts are run by nonbanks, such as fintech startups or brokerage firms.
The benefits of these types of accounts is that since they are mostly online services, there’s the convenience of managing everything online. Plus, cash management accounts have a much higher yield than your traditional savings account.
One of the downsides is that you might have to pay fees to close your account or if you want to transfer funds from your CMA to a different account.
5. High Yield Checking Accounts
Opening a high-yield checking accounts could be a better option than a savings account based on your needs. Some banks offer these which, as the name suggests, offer higher yields than your traditional checking account.
One of the benefits to these accounts is that there aren’t any monthly fees so you don’t need to pay to keep your account open. Some banks also offer ATM fee reimbursements, mobile deposit, and other online banking features.
On the flip side, high yield checking accounts may require certain criteria to be met. Things like a minimum balance in the account or a limited number of transactions per month are just some of these criteria.
High yield checking accounts are an excellent option for people who want to keep their money liquid but earn more interest.
6. Peer-to-Peer Lending
This alternative here is quite self explanatory. It’s one of the newer types of investments where you lend money directly to individuals or small businesses, cutting out the traditional financial institutions.
Peer-to-peer lending can produce high yields but also come with higher risks. It’s gained popularity in recent years, but you should always understand what you’re getting into as borrowers may default on their loans.
7. Roth IRA (Individual Retirement Account)
Depending on your situation, investing your money into an individual retirement account (IRA) could be a smart play. When it comes to a Roth IRA, if you make under the required threshold, you could contribute up to $7,000 each year.
As an alternative to a high-yield savings account, this is a great play if you’re looking to save for the long haul. You won’t be able to touch your money until you’re 59 and ½ years without being penalized, but this investment provides you with a tax-free growth.
One of the downsides to opening a Roth IRA is that if you make over the threshold you can’t put your money towards a Roth IRA. There are other alternative retirement accounts that you could then invest in. Another downside is that the money is locked up until you’re about 60 years old, unless you want to pay a penalty to get access to your money.
8. Treasury Bonds
Similar to a municipal bond, treasury bonds are government debt securities but instead of local governments, they are backed by the U.S federal government. Most treasury bonds have a maturity period ranging from 10 to 30 years and will earn you interest over this period of time.
Interest rates on these bonds can reach around 4% and are both state and local income tax free. Treasury bonds are for those who are investing long term and are a great alternative to high yield savings accounts.Interest rates on these bonds can reach around 4% and are both state and local income tax free. Treasury bonds are for those who are investing long term and are a great alternative to high yield savings accounts.
9. Money Market Funds
Money market funds could also be a better option than a savings account. They are a type of mutual fund invested by an investment fund company. While they’re not FDIC insured, money market funds are still considered to be a relatively safe investment.
How they work is that your money is invested in low-risk things such as Treasury securities as well as short-term corporate and municipal securities. These types of investments are intended to offer you high liquidity with a low level of risk.
As mentioned before, one of the negatives to this type of account is that it’s not FDIC insured so it does come with some risk.
10. Investment Accounts
Investment funds such as mutual funds, index funds, and exchange-traded funds (ETFs) can be a good option for those willing to take on more risk for potentially higher returns. These types of funds invest in a diversified portfolio of stocks, bonds, or other types of assets.
One risk involved with investing is that there is no guarantee of returns, and the money you put in can go up and down in value. Some even think that investing is too risky but that’s just one of the common misconceptions about money. While it is true that your investment can go down, you can manage that risk by spreading your investments over different accounts.
Being Comfortable With Your Investments
While high yield savings accounts can be a good option for short-term savings, they may not be the best option for everyone. Knowing what your financial situation is key to invest properly.
An app like Hiatus allows you to link your different bank accounts and keep track of your finances. Be sure to do your research and compare different options before making any investment decisions.
At the end of the day, every investment comes with some level of risk and it's up to you to determine what you're comfortable with.
4. Cash Management Account
Cash management accounts are typically online managed accounts where you can put your cash, receive competitive interest rates and take your money out as needed.
You may ask, “Isn’t that just a bank account?” While it seems very similar, cash management accounts are run by nonbanks, such as fintech startups or brokerage firms.
The benefits of these types of accounts is that since they are mostly online services, there’s the convenience of managing everything online. Plus, cash management accounts have a much higher yield than your traditional savings account.
One of the downsides is that you might have to pay fees to close your account or if you want to transfer funds from your CMA to a different account.
5. High Yield Checking Accounts
Opening a high-yield checking accounts could be a better option than a savings account based on your needs. Some banks offer these which, as the name suggests, offer higher yields than your traditional checking account.
One of the benefits to these accounts is that there aren’t any monthly fees so you don’t need to pay to keep your account open. Some banks also offer ATM fee reimbursements, mobile deposit, and other online banking features.
On the flip side, high yield checking accounts may require certain criteria to be met. Things like a minimum balance in the account or a limited number of transactions per month are just some of these criteria.
High yield checking accounts are an excellent option for people who want to keep their money liquid but earn more interest.
6. Peer-to-Peer Lending
This alternative here is quite self explanatory. It’s one of the newer types of investments where you lend money directly to individuals or small businesses, cutting out the traditional financial institutions.
Peer-to-peer lending can produce high yields but also come with higher risks. It’s gained popularity in recent years, but you should always understand what you’re getting into as borrowers may default on their loans.
7. Roth IRA (Individual Retirement Account)
Depending on your situation, investing your money into an individual retirement account (IRA) could be a smart play. When it comes to a Roth IRA, if you make under the required threshold, you could contribute up to $7,000 each year.
As an alternative to a high-yield savings account, this is a great play if you’re looking to save for the long haul. You won’t be able to touch your money until you’re 59 and ½ years without being penalized, but this investment provides you with a tax-free growth.
One of the downsides to opening a Roth IRA is that if you make over the threshold you can’t put your money towards a Roth IRA. There are other alternative retirement accounts that you could then invest in. Another downside is that the money is locked up until you’re about 60 years old, unless you want to pay a penalty to get access to your money.
8. Treasury Bonds
Similar to a municipal bond, treasury bonds are government debt securities but instead of local governments, they are backed by the U.S federal government. Most treasury bonds have a maturity period ranging from 10 to 30 years and will earn you interest over this period of time.
Interest rates on these bonds can reach around 4% and are both state and local income tax free. Treasury bonds are for those who are investing long term and are a great alternative to high yield savings accounts.Interest rates on these bonds can reach around 4% and are both state and local income tax free. Treasury bonds are for those who are investing long term and are a great alternative to high yield savings accounts.
9. Money Market Funds
Money market funds could also be a better option than a savings account. They are a type of mutual fund invested by an investment fund company. While they’re not FDIC insured, money market funds are still considered to be a relatively safe investment.
How they work is that your money is invested in low-risk things such as Treasury securities as well as short-term corporate and municipal securities. These types of investments are intended to offer you high liquidity with a low level of risk.
As mentioned before, one of the negatives to this type of account is that it’s not FDIC insured so it does come with some risk.
10. Investment Accounts
Investment funds such as mutual funds, index funds, and exchange-traded funds (ETFs) can be a good option for those willing to take on more risk for potentially higher returns. These types of funds invest in a diversified portfolio of stocks, bonds, or other types of assets.
One risk involved with investing is that there is no guarantee of returns, and the money you put in can go up and down in value. Some even think that investing is too risky but that’s just one of the common misconceptions about money. While it is true that your investment can go down, you can manage that risk by spreading your investments over different accounts.
Being Comfortable With Your Investments
While high yield savings accounts can be a good option for short-term savings, they may not be the best option for everyone. Knowing what your financial situation is key to invest properly.
An app like Hiatus allows you to link your different bank accounts and keep track of your finances. Be sure to do your research and compare different options before making any investment decisions.
At the end of the day, every investment comes with some level of risk and it's up to you to determine what you're comfortable with.
Find Ways to Save
Find Ways to Save
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