What Are the Best Alternatives to a Traditional Savings Account?
A basic savings account can be a great place to start when you’re new to saving. It’s also an excellent choice if you have a small balance. There are alternates if you need a more robust savings plan or want to increase the amount of interest being paid.
Money Market Account
A money market account is a step up from a traditional savings account. They normally have a $1,000 balance requirement to open without a fee. The withdrawals are limited to six per month. The interest rate is a little higher than the basic savings account and is usually tiered. The higher the balance you have in the account, the higher the interest rate you’ll receive.
Certificate of Deposit (CD)
A Certificate of Deposit (CD) pays a higher interest rate as well. When you open a CD at a bank or credit union, you are committing to keeping those funds in that institution for a specified amount of time. You can commit to as little as a few days to several years. This is called the maturity date.
If you are willing to commit to keeping those funds on deposit, the financial institution will pay you a higher interest rate than a savings account or a money market account. Generally, the longer the time on deposit, the higher the interest rate you will earn. You will pay a penalty if you take the money out before the maturity date.
High-Yield Checking Account
A high-yield checking account is another alternative. These accounts became popular about ten years ago. They usually don’t have a minimum balance requirement, but instead require a direct deposit each month, a minimum number of debit card uses, or other requirements set by the bank or credit union. If you meet these requirements, you will earn the higher interest rate. If not, you don’t earn any interest and may even incur a service charge.
You can always start with the smaller savings account, and then, as your balance grows, branch out to a money market account or a CD. The important thing is to save!
Linda Jacob is a Certified Financial Planner® and an Accredited Financial Counselor®. Linda began working in the banking industry in high school and put herself through college. After years of growing assets for her clients, her true purpose in life became clear. She was put on earth to help everyone become successful money managers, get out of debt, and reach their financial goals. When Linda isn’t working, she enjoys cooking, golfing, and reading.