How to Get a Better Interest Rate on Your Savings Account

In this economy the average rate for a CD is terrible. In fact, the majority of banks in the US are paying less than 1% for their savings account, and unfortunately this isn’t going to change any time soon. This low-interest environment has led retired citizens and other investors who depend on an income from an interest rate to try to squeeze as much extra interest as they possibly can. Here are a few alternative accounts that offer a better interest rate than a typical CD.

Long-Term CDs 

The going rate for a five-year certificate of deposit is at 1.64% and you can find banks that’ll pay as high as 2.36%. This is significantly higher than the very low rates of a short-term CD. Keep in mind that 13% of banks in the US charge their investors a year’s interest if they cash their five-year CD out early. On top of this, some CD contracts allow banks to raise the penalties before it matures. This means that you should be prepared to mature a long-term CD.

Bump-up CDs 

This is a type of long term CD that allows you to raise your rate before the CD fully matures if average rates increase. However, CDs that have a bump-up option also come with a lower starting rate than those CDs that don’t allow for bump-ups

I Bonds

Investors that purchase a Savings Bond that is adjusted for inflation (otherwise called an I Bond) can earn an interest rate of 4.6% for the next six months. Be aware that I Bonds are made of two components: an inflation rate that is adjusted every half-year and a fixed rate that remains consistent for the bond’s life. This means that the high interest return is only effective for six months.

Rewards Checking Accounts

The average rate for a rewards checking account comes in at 2.56%. This is significantly higher than the average rate of any type of CD. An added benefit of this type of savings account is that you are able to take out money any time that you please without a penalty. However, to earn this type of interest rate you have to be eligible and meet requirements that can be quite rigorous. The majority of credit unions and banks that offer this type of savings account mandate that you use your debit card a minimum of ten times per month. This means that if you use your debit card only 9 times your interest rate will sink substantially. Another drawback to this type of savings account is that the amount of money that can be used for rewards rates is limited.

Online Savings Accounts 

Investors that are not able to gain access to a rewards checking account are still able to increase their interest rate by using their bank’s online system. The average rate for an online savings account is 5 times more than the rates for a traditional bank. For instance if you had $10,000 in your online bank you will get a .87% interest rate versus a .15% one from a brick and mortar traditional savings account. You will also not have to deal with any extra risk by using an online banking system. You are able to link your checking account from a traditional bank to an online savings account and can use the online account to make transactions whenever you please. This includes ATM withdrawals.

Unfortunately in this economy any interest rate that is higher than 1% is considered to be a great deal. This means that if you are an investor who depends on the income gained from a savings account you might be in a dire situation. The good news is that by looking at these alternative accounts that offer increased interest rates; you can make more money than a typical CD would offer.

Finances - 24 Jun, 2014 - No Comments