Where to Save Your Money in Order to Earn the Most Interest
Earning interest on the money you save can provide a big financial boost. Get the basics from our financial expert.
Saving money is a simple and smart strategy for building personal wealth, but what if you could multiply your savings at a faster rate? That's where interest-bearing accounts come into play. "Interest-bearing accounts help you earn interest because the bank is paying you interest (money) based on your account balance. One of the most significant benefits is that this money is separated from your day-to-day spending account," explains Brian Hamilton, CEO of One. "You'll be able to keep it off to the side, accruing interest versus being tempted to or unintentionally spending it. It's also a great way to build up a rainy day or emergency fund for those unexpected expenses. And any smart investor will tell you that the principle of compounding is essential to building wealth."
Here, we explain the best places to save your money and earn interest.
Current Interest Rates
While some saving accounts may boast an interest rate, not all interest-bearing accounts are going to be equal or what you need to meet your financial goals. Understanding the current interest rates can help you to compare accounts. Most large banks have a current Annual Percentage Yield (APY) of 0.6 percent. The APY earnings will also compound, or be added to, your account balance. So, think of it as earning a little money on top of the money that you placed into the account. It's an easy way to grow your money over a period of time.
"When compared to traditional banks' rate offerings, One blows them out of the water," says Hamilton. "One [offers] 3.00 percent APY in the Auto-Save Pocket and 1.00 percent APY in the Save Pocket. We're able to provide this fantastic savings rate because we don't have the traditional overhead that brick-and-mortar banks have and because it's core to our mission of helping people build financial wellness." So, when looking for a place to save your money, make sure to compare the interest rates on the accounts. A higher interest rate, or APY, can increase your savings.
Strategies and Accounts
Two things need to be considered when looking at interest-bearing accounts for savings: How soon will you need to be able to access the money and how easily can you withdraw the money when you need it? Long-term accounts like certificates of deposit (CDs) can't be withdrawn whenever you want because they have term limits, but a high-yield checking or savings account can be liquidated quickly when you have an emergency or reach your savings goal. Retirement accounts are also a good way to save money but remember that you can't access the funds without penalties until you have reached a certain age.
Another thing to look for is automation. "While millions of Americans have been with their bank for years, 2021 is the year to move your money to places that offer dramatically higher interest rates and much more intuitive ways to save. When looking to build savings, automation is critical," says Hamilton. "There are a number of new banks that have automatic or built-in functionality that works in two ways—rounding up every purchase and depositing a few extra cents or dollars in your saving account, or automatically taking a percentage of your direct-deposited income and placing it in savings. Making a choice to save requires effort, whereas auto-save simplifies things and removes a lot of heavy lifting." Then, all you have to do is compare the interest rates and choose the one most beneficial to you.