If you have a large amount of money in your checking and savings accounts, you might miss out on gains you could be earning. Between inflation and the low rate of interest even on savings accounts, your money is actually losing real spending value every year. At the same time, you need to keep some money liquid, so longer-term investments might not serve your needs. Here are a few highly liquid alternatives where you can put your money to work with a higher interest rate than a savings account.
High-Yield Savings Account
Online-only, high-yield savings accounts have traditionally had interest rates much higher than the rates available at brick-and-mortar banks. However, with federal interest rates so low, the rates you can get even from a high-yield savings account aren’t that impressive. You might get .05-.07% at best—which isn’t enough to keep up with inflation.
Still, getting some interest is better than none, and these accounts function just like other savings accounts, keeping your money liquid and easy to access. That may make them a good alternative to your bank’s savings account if you don’t want to try something less familiar. Plus, most of these accounts do not require a minimum balance.
Money Market Account
Money market accounts, available from your bank, are an alternative fairly similar to savings accounts. They’re FDIC-insured up to $250,000, meaning you can’t lose money in them unless your balance exceeds that amount. And you can easily transfer money in or out of them. Some even issue debit cards so you can access your money even more easily. But transfers in and out of the account are generally limited to seven per month.
Interest rates range from .06% to .11%, with higher yields if you deposit more money. Some accounts will require a minimum balance and charge fees if your balance dips too low.
Money Market Funds
Despite the similar name, money market funds aren’t the same as money market accounts. Instead of only being deposited, your money is invested in short-term, liquid assets. As a result, your money is not FDIC insured. However, the products the fund invests in will be low risk, so you are still unlikely to lose anything.
Yields aren’t guaranteed, but you can assess a money market fund by its seven-day yield. This is the amount it earned over the past seven days, minus fees, multiplied out to what it might earn in a year. Of course, as market situations change, the actual yield you get may be greater or less.
On average, you can expect an annual yield of 2-3%. That’s significantly higher than a savings account, but lower than other investments like stocks. If you don’t need your money liquid, it’s better to invest it in other products, like mutual funds, bonds, or a balanced portfolio of stocks. Still, keeping some of your money in a money market fund can be a better-earning alternative to a savings account, since you can withdraw it at any time.
Ask Your Advisor About Savings Account Alternatives
If you’ve just left money in your bank’s savings account before, today’s inflationary market makes it a good time to consider alternatives. Talk to your financial advisor about what options will work best for your situation. How much should your emergency fund be? What should you do with the rest of your money?
If you don’t have a financial advisor, we can connect you with the right person for you. All it takes is a quick phone call!