Where can I get the highest interest on my money? Here's what experts say
The Federal Reserve has been hiking interest rates since last year, and while higher rates aren't a good thing on credit cards or mortgages, on savings products like certificates of deposit and high-yield savings accounts they offer a much-needed way for consumers to grow their wealth.
In today's environment, some banks are offering high-yield savings accounts with rates of 5.5% or more. With the benefit of daily compounding interest, that means a $10,000 deposit now could net you over $600 over just 12 months.
Still, not all accounts (or banks, for that matter) are offering rates that high. Want to make sure you're maximizing the interest your savings earn you? Then you should know the best ways to earn interest right now.
Where can I get the highest interest on my money?
Here are a few steps to take, according to experts, in order to get the highest interest on your money now.
Switch savings accounts
While rates on regular savings accounts are up, they're nowhere near the rates you'll get on a high-yield savings account. According to the Federal Deposit Insurance Corp, the average rate on a traditional savings account is 0.45% right now. High-yield savings rates, though? Some banks are offering rates as high as 6.17%.
"With the Fed signaling that rates will stay higher for longer, now is the time to shift reserve cash into an account that offers a competitive rate," says Max Lane, CEO of financial technology platform Flourish. "There is no reason why you shouldn't be getting over 4.5% on cash right now, and the sooner you act, the more you could earn."
Money market accounts are also smart alternatives to the traditional savings account. The average rate is slightly higher (0.65%, according to the FDIC), and they often offer easier access to your cash.
"Money market accounts —which resemble savings accounts — often offer check-writing or debit card privileges," says Scott Neu, a financial advisor with Reinke Gray Wealth Management. "They typically yield higher interest rates than standard savings accounts, with rates sometimes varying based on the account balance."
Consider a CD ladder
Certificates of deposit — or CDs — are smart ways to earn more interest these days, too. With CDs, you get guaranteed returns. You simply make a deposit now, leave the balance untouched for a specified amount of time, and collect the earnings once the term is up. Right now, the best CD interest rates are generally on one-year terms.
"The longer the time horizon you have, CDs may make more sense — especially if you believe rates will be heading lower," says Lawrence Sprung, a certified financial planner and founder of Mitlin Financial.
If you do opt for CDs, consider laddering them — essentially spreading your money out among different CD terms. Then, when the first one comes to maturity, invest it in a new CD and keep going from there. This allows you to take advantage of current interest rates if they should rise, and it helps you keep your cash more liquid (rather than having a huge chunk of money tied up for years).
See how much you could be earning with a CD here.
Shop around
Once you know what product you're looking for, don't just go with your home bank or the first offer you find on Google. Do your research and shop around to find accounts with high rates and small or no fees.
And check fees closely, as well as any minimum deposits they may require, and see if any institution is running a promo (deposit $10,000 and get an extra $100, for example). This may allow you to earn more in the long run.
Finally, look at each bank's approach to compounding, too. Interest that compounds daily is going to equal more in long-term returns than interest compounding monthly or annually.
Don't set it and forget it
Opening your new high-yield savings account or money market account is only the first step to earning more interest. To really maximize your money's growth, make sure you're regularly contributing to your accounts — especially those that offer compound interest.
Some experts recommend setting up recurring auto-contributions to make sure you're always adding to your accounts. You can also deposit any windfalls you receive throughout the year — things like tax refunds, holiday bonuses or commission checks. The more you add, the more interest you'll be able to earn.
Start earning more money with a high-yield savings account here today!
