But credit unions are also worth a look since many offer competitive rates. Next, consider what purpose a new savings account will serve. And, if you have multiple savings goals, you may want to open a savings account for each one, versus having all of your money pooled in one place. In comparing savings accounts, in addition to looking at the APY, consider using these criteria as a guideline:. That last point is important to remember since banks can and often do charge a fee for making excess withdrawals from savings.
Ordinarily, savers are limited to six withdrawals per month from savings accounts under federal Regulation D. An interim final rule was passed to suspend that limit in response to Covid, but banks can still impose an excess withdrawal fee at their discretion.
High-yield savings accounts are just one option for setting aside money. When shopping around for the best APY, consider where certificates of deposit or money market accounts may fit into your savings plan. Certificates of deposit or CDs are time deposit accounts. When you open a CD, you agree to leave your money in the CD for a set time period.
During this time, the CD earns interest and once it matures, you can withdraw your initial savings along with the interest earned. The trade-off is that getting those higher APYs may mean leaving your money in a CD for a year or more.
Many banks charge a penalty, which is typically a percentage of the interest earned, for withdrawing money from a CD early. One workaround is to create a CD ladder. The idea is to have CDs routinely maturing so you can either withdraw the money if you need it or roll it over into a new CD, ideally at a competitive APY. This can help keep your savings liquid while minimizing the risk of triggering early withdrawal penalties. A money market account combines features of a savings account with a checking account.
Money market accounts can be attractive alternatives to savings accounts because they can offer broader access to your money. Also, keep in mind that money market accounts are subject to the same Regulation D rules as savings accounts with regard to withdrawals. In the meantime, continuing to add money to savings can help with building a larger cash buffer in case of emergencies or furthering other money goals. Setting up automatic transfers from checking to savings, or earmarking part of your direct deposit each payday to savings, can help with growing your financial cushion, regardless of which way APYs move.
I'm a freelance financial journalist and a regular contributor to U. News and CreditCards. You can find me on LinkedIn or follow me on Twitter seemomwrite. She has worked as a personal finance editor, writer, and content strategist covering banking, credit cards, insurance and investing. As a small business owner and former financial advisor, Daphne has first-hand experience with the challenges individuals face in making smart financial choices.
Select Region. United States. United Kingdom. You may be able to earn higher returns if you open different types of accounts to grow your savings. Here are some alternatives to savings accounts. A certificate of deposit , or CD, is a type of bank account that holds your deposit for a set term, which could be six months, a year or longer.
The downside is you may pay a penalty for early withdrawal. You can choose to open one CD and wait until it matures to access all your funds at once, or you can open several CDs with different terms using a CD ladder strategy and access your money at regular intervals as the individual CDs mature.
A money market account is another type of deposit account at a bank or credit union. You may need to make a minimum deposit to open a money market account. You can make withdrawals or, like a checking account, payments from your account — but typically not more than six times a month. The interest rate on money market accounts is usually higher than on conventional savings accounts.
Keep in mind that money market funds, or money market mutual accounts, are not the same as money market deposit accounts. Money market funds are investments that are not insured by the FDIC. Investors form a mutual fund by combining their money and using it to buy investments like stocks and bonds.
An exchange traded fund, or ETF, is similar to a mutual fund because you can buy shares in the fund and it invests in stock, bonds and other securities. Buying shares in a mutual fund or ETF can potentially result in a higher return than putting money in a savings account.
With that in mind, Tumin recommends looking for no-penalty CDs, which offer fixed rates for a set term, typically between six months and a year. While their rates won't be much higher than a high-yield savings account's, they also won't decrease during the term. Meanwhile, it's possible that rates on high-yield accounts will sink further.
But given CD rates are locked in, "it could still be a good deal if rates keep going down" on savings accounts. And you won't be dinged for withdrawing money early, should you need to, which makes them doubly attractive just make sure that what you are signing up for is, in fact, a no-penalty CD. Still, high-yield savings accounts are still a great option for savers: They are FDIC insured, and spending the money is a bit harder than spending money from a checking account.
Plus, the rates on these accounts are still significantly higher than the national average savings rate, which is 0. And once the economy improves, rates will go back up. Falling rates are disappointing, but they are only temporary.
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