If a personal finance credo were to exist, it’d go something like: Spend less than you earn. What’s a bit more complicated, though, is deciding where to put your savings so you can earn interest for your troubles.
Account details and annual percentage yields (APYs) are accurate as of April 3, 2024.
Best places to save money and earn interest
The best choice for you depends on your particular circ*mstances, but consider the following options.
High-yield savings account
A high-yield savings account operates similar to a traditional savings account, allowing you to deposit and withdraw funds. But there’s one significant difference: you earn interest at a much higher rate.
For instance, the national average savings rate (as of April 15, 2024) is 0.46% APY, according to the Federal Deposit Insurance Corporation (FDIC). But, one of the best high-yield savings accounts — the Bask Bank Interest Savings Account — offers a yield of 5.10%. If you deposited $10,000 into this account for a year, you’d earn $510 in interest.
Who should consider a high-yield savings account? High-yield savings accounts are perfect for emergency funds, short-term saving goals or any situation where you need quick access to your money.
High-yield checking account
Like a regular checking account, a high-yield checking account allows easy access to your money through debit card purchases, ATM withdrawals, checks and online bill pay. So your money is always ready when you need it.
But unlike regular checking accounts that typically pay no interest, high-yield checking accounts have interest rates that out-do many traditional savings accounts.
For example, the national average interest checking account earns 0.08% APY (as of April 15, 2024), according to the FDIC. But, the Consumers Credit Union Rewards Checking account offers a yield from 0.10% to 5.00% APY, depending on the account balance and if certain requirements are met. Likewise, the Presidential Bank Advantage Checking account provides yields of 4.62% APY on a daily balance up to $25,000 and 3.62% APY on balances over $25,000. If certain requirements are not met, you'll earn a 0.10% APY.
Who should consider a high-yield checking account? High-yield checking accounts are best for day-to-day spending needs where you want to earn interest but still have no strings attached when it comes to using your money.
Certificates of deposit (CDs)
Certificates of deposit (CDs) are time-bound deposit accounts offered by banks and credit unions. Unlike savings or checking accounts, CDs lock in your money for a fixed term — ranging from a few months to several years.
In return, they offer a higher interest rate that doesn’t change throughout your term, providing a predictable return. But you usually can’t withdraw funds before maturity without a penalty. Consider a CD ladder if you like the idea of CDs but want more access to your money.
But just how much can you earn with a CD? As of April 15, 2024, the national average rate is 1.81% APY for a one-year CD and 1.39% APY for a five-year CD, according to the FDIC. Some high-yield CDs have rates well above these averages. For example:
- Barclays Online certificates of deposit offer 5.00% APY for a one-year CD and 3.75% APY for five years.
- Sallie Mae certificates of deposit provide 4.95% APY for a one-year term and 4.00% APY for five years.
- Alliant Credit Union share certificates have some of the best credit union certificate rates, with APYs going up to 5.15%.
Who should consider a CD? CDs are ideal if you have funds you can commit to leaving untouched for the full term. They’re best for short to medium term goals, like saving for a down payment, home improvements or your child’s education.
Money market account
A money market account (MMA) is like a savings and checking account mixed together. Like a checking account, a money market account comes with debit cards and checks for easy spending. But like a savings account, you earn a higher interest rate on your money and may be limited to six withdrawals a month.
Money market accounts usually have better rates than savings accounts. As of April 15, 2024, the national average money market rate is 0.66% APY, according to the FDIC — which is slightly higher than the national average savings rate of 0.46% APY.
But as with other high-yield places to save money, the best money market accounts earn way more than the national average. For example, the Quontic Money Market Account has a stellar 5.00% APY. If you deposited $10,000 into this account for your year, you’d earn $512 in interest — compared to $64 with the national average money market rate (0.64%).
Who should consider a money market account? The combined checking and savings features make them a good option for emergency funds or large upcoming purchases. Some people also use them for sinking funds.
Treasury Bills
Treasury bills, often referred to as T-bills, are short-term government securities. They’re essentially IOUs issued by the U.S. government, with maturity periods ranging from four weeks to a year.
T-bills are considered one of the safest investments since they’re backed by the government’s credit. They don’t pay periodic interest but are sold at a discount; your profit is the difference between the purchase price and the amount you get at maturity. You can purchase T-bills through online brokers or directly from the Treasury.
Who should consider treasury bills? T-bills are ideal if you have a financial goal to achieve within the next year. While CDs often have maturity periods of one to five years. T-bills mature in four weeks to one year, making them a better option for shorter time frames.
Series I Savings Bonds
Series I Savings Bonds are issued by the U.S. government and are designed to keep up with inflation. Like T-Bills, they’re considered low risk. I Bonds earn interest based on two components — a fixed rate that remains the same over the 30 year life and an inflation rate that is adjusted every six months.
Interest compounds semiannually and accrues for up to 30 years. There is a $10,000 annual purchase limit per Social Security number. You’re required to hold I Bonds for at least one year. If you redeem them before five years, you’ll forfeit the last three months’ interest.
Who should consider Series I Savings Bonds? I Bonds are particularly appealing for long-term savers who are concerned about inflation eroding their purchasing power. They’re a smart choice if you have a long-term saving goal, like saving for education or retirement, and want to diversify your investments with a low-risk option that keeps up with inflation.
Bank Bonuses
Bank bonuses provide an easy way to earn extra cash for something you likely need to do anyway — open a new savings or checking account. There is typically a minimum deposit or account balance needed to qualify for the bonus. Some banks may also require maintaining a balance or setting up direct deposits for a certain period.
You’ll likely earn more on the money deposited in the account from the bonus than you would have in interest in a savings account.
If the requirements are easy to meet — and you like the underlying account — bank bonuses can be a great place to earn extra cash. Just make sure the account isn’t riddled with fees that will negate any bonus you receive.
Who should consider bank bonuses? Bank bonuses are an excellent option if you’re looking to switch banks or open a new account.
Which option is best for earning higher interest?
Choosing the right place to save and grow your money hinges on understanding your financial goals and timeline.
For emergency funds. Meade recommends keeping emergency funds in a high-yield savings account for full liquidity. You need to be able to access that money at a moment’s notice.
For short-term goals (under five years): If your goal is short-term, such as saving for a vacation or a down payment, you might consider short-term CDs or Treasury Bills. These options may offer rates slightly higher than a high-yield savings account (HYSA).
The benefit of CDs and treasury bills is a fixed rate of return. But “the downside is that if you have to access that money early in a CD, you will owe a penalty, and in a treasury the value could be valued higher or lower at the time you sell it,” said Kendall Meade, a Financial Planner at SoFi.
For long-term goals (over five years): Meade recommends investing this money so it has the potential to grow more. “You don’t have to be an expert to start investing,” said Meade. “In fact, many people like using a robo advisor… that can invest their money in a diversified portfolio based on their goals and time frame for them.”
You might also consider longer-term options like I Bonds if you want to mix safer investments into your strategy.
Frequently asked questions (FAQs)
There are several good options for saving money, like high-yield savings accounts and CDs. But don’t forget about retirement.
“If you have access to a 401(k),” said Howard Dvorkin, chairman at Debt.com, “then that’s easily the most lucrative safe space for your hard-earned cash.”
Even better if your employer offers some type of match, meaning you’ll save your contribution and whatever your employer decides to put in, too.
When high-interest debt is involved, paying it down should take priority over saving since it delivers an immediate return equal to the interest rate.
“If you are carrying any high-interest consumer credit — credit cards, personal loans — I would pay it down as soon as possible,” said Christopher A. Lazzaro, president of Plan For It Financial, a financial planning firm, “Paying off a credit card with a 19% interest rate is the equivalent of earning a 19% return.”
The safest place to put money is in an interest-earning bank account at an FDIC-insured bank or an NCUA-insured credit union. There’s no risk of losing your money. You’ll find the best interest rates at online banks.
Government securities like T-bills and I Bonds are also considered safe options.
Earning a 10% interest rate is typically associated with higher-risk investments, not traditional savings options. While certain investments in the stock market or real estate might offer such returns, they come with a higher risk and volatility.
