Today’s historically low interest rates are a boon for borrowers but pretty lousy for savers. Whether you want to simply have a healthy emergency fund or you need to save up for a down payment on a new home, finding a savings account that pays higher than 1% in interest has become a real challenge.
Numerous sites allow you to use free online tools compare savings accounts. However, if you’re looking for something that offers you a bit extra, there are several good alternatives to traditional savings accounts that give you a little more in return.
Certificate of Deposit
A certificate of deposit (CD) is a financial product that works something like a savings account but with higher interest rates. You make a lump sum deposit and the financial institution provides you with a guaranteed annual interest rate for the duration of your investment.
You must be willing to lock in your money for a specific length of time or risk paying onerous early withdrawal penalties. Shop around for the best interest rates before deciding on a CD.
U.S. Treasury Securities
Government issued securities, such as Treasury bonds, bills and notes are also safe places to invest your money while earning higher interest rates than traditional savings accounts and CDs.
Treasury securities are risk-free investments because the U.S. government backs them. Many people invest in securities as part of a long-term savings plan, such as saving toward retirement or college education.
Readers in the UK can take advantage of an ISA, short for Individual Savings Account, which allows residents to save without paying taxes on the returns. The two basic types of ISAs are stocks and shares ISAs and cash ISAs.
Stocks and shares ISAs allows you to invest your ISA allowance in shares, trusts, open-ended investment companies and corporate and government bonds. Cash ISAs operate just like tax-free savings accounts.
Money Market Accounts
Money market accounts are low-risk investments that typically offer higher interest rates than savings accounts while having the same ease of liquidity. You can normally make three to six withdrawals per month from your account, but be sure to meet the minimum balance requirements or be willing to pay the penalty.
When you invest in the stock market, you can make money in two different ways. You make money when the share price of your stock increases and you can make additional income from the dividends produced by the stock.
Dividend stocks can provide investors with a reliable and steady stream of income that is taxed at a lower rate than other types of income. Dividend paying stocks might earn you a better return than a savings account, but they are riskier as well.
When you invest in stocks, there is no guarantee that the share price will go up or that the company will continue to pay its investors dividends.