4 Alternatives to Traditional Savings Accounts

The most common type of bank account is a savings account. Your money can be kept in a safe place while earning a small amount of interest at the same time. If the bank is a member of the Federal Deposit Insurance Corporation (FDIC) and it goes out of business, your funds will be insured up to $250,000 per depositor, per bank for each account ownership category. This amount includes any earnings you may have accumulated on your deposit. The NCUSIF insures depositors savings in credit unions in the United States.

Today, it will be difficult to find a regular savings account that offers more 1.5 percent. A savings account will typically pay an average of 0.06 percent APY while the largest banks won’t usually offer more than 0.01 percent APY. An online savings account may earn a little more, with rates up to 1.05 percent APY.

If individuals have a low balance in their savings account, they may be charged a $25 annual fee and/or a monthly minimum balance charge ranging from $4 to $10. A minimum amount to be deposited may be required starting at $5 to $50 for the basic savings account. Some banks may even charge a fee to open a savings account.

A savings account can be opened with a Bank or Credit Union at a brick-and-mortar place or through an online secured banking site. Your identity must be verified with documents such as a passport, driving license or Social Security number. Different banks may require a proof of address, which can be verified with documentation including a lease agreement, utility bill or other documentation which lists your address.

A Certificate of Deposit is a financial instrument you can invest in for a certain length of time from days or months to even years. The longer the funds are held, the higher a return you will receive on your investment. If you choose to withdraw before the maturity date, an early redemption fee may be charged. CDs are one of the safest investments someone can make with very low risk involved.

High-yield savings accounts pay a higher interest rate than a regular savings account. To qualify, you may need to meet some criteria. To qualify for the higher interest rate, you will most likely need to make a large deposit, keep the high balance for a certain length of time and limit your transactions on the account. An online high-yield savings account may have fewer qualifications to open this type of account and they may even pay higher than a bricks and mortar bank.

Money Market accounts are able to offer higher interest rates as they invest in short-term securities such as Certificate Deposits, Government Securities and Commercial Papers. They will typically require a higher minimum balance with fewer withdrawals allowed over time, although you are allowed check writing capability and even a debit card. Accessibility to your funds is limited more than a regular savings account, which makes them less liquid.

Online banks don’t have the added expenses of maintaining a brick and mortar presence so they are able to offer higher interests than their counterparts. Some will offer yields of 1 percent or more so it pays to shop around