Given today's economic climate, we all need to leverage every way possible to save and grow our money, and that starts with maximizing the interest paid out on our savings accounts.
Earning higher interest rates causes your savings to compound faster. Whether you’re saving for a deposit on your own home or building a financial cushion to fall back on later, high-interest savings accounts are valuable tools.
We’ve put together ten tested ways of ensuring you can maximize your savings account interest and grow your wealth.
1. Shop Around for the Best Savings Account Rates
The first step to maximizing your savings account interest is to do your homework. Go online and shop around for the best available rates. Interest rates vary, and often significantly so, among banks and credit unions. It therefore makes sense to compare the various offers.
Be sure you include online banks and credit unions when doing your comparisons. Because all their operations are web-based, these institutions have lower overhead costs and are therefore able to offer higher interest rates than traditional brick-and-mortar banks.
2. High-Yield Savings Accounts
Building on our first point, let’s look at high-yield savings accounts. These can sometimes earn up to ten times the returns of ordinary savings accounts. With traditional savings, the interest rate is, on average, a paltry 0.46%, yet some high-interest savings accounts offer over 5%. Most of these accounts are offered by online banks or FinTechs because traditional institutions, with all their overhead costs, simply cannot compete.
Remember that in any savings account, the annual percentage yield (APY) varies, increasing or decreasing depending on the Federal Reserve’s benchmark interest rate. While a good APY will be a big factor in your choice, remember to read the small print. Sometimes the higher APY comes with hefty monthly fees or deposit and balance minimums. Such fees can erode your savings so remember to look into things like account maintenance or ATM charges.
For our purposes, high-yield savings accounts are a short-term savings move but remember they aren’t good long-term investments.
3. Get the Best Rates with Promotional Offers
Some banks and credit unions often offer promotional interest rates to attract new customers. These might be significantly higher than the standard rates available, creating a situation where you can maximize your earnings in a savings account. Be on the lookout for such promotions and act quickly but carefully before they expire.
4. Maintain a Higher Balance
The more money you have in your savings account, the more interest you'll get. Think about consolidating your money into one account to maximize that interest paid. Over time, the interest you earn compounds. This compounding effect snowballs so that you earn interest on your principal amount as well as on your previously earned interest.
Maintaining a higher balance has other perks too like access to personalized banking services such as tailored financial advice and priority customer support. These can potentially help you maximize your benefits even more.
5. Automate Your Savings
Setting up an automated system whereby money is withdrawn periodically, preferably monthly, from your current account to your savings account will help create a consistent buildup of your savings with less effort and self-discipline. This follows the wise personal finance rule: “Pay Yourself First.”
6. Savings Ladders
Laddering is a savings strategy whereby you spread a lump sum of money across several certificates of deposit that have different maturity dates. The aim is to lock in high annual percentage yields across multiple accounts,
The idea is to identify a time when higher interest rates, which are usually offered by longer-term accounts, help you get the most from your money without directives limiting your quick access to funds. In other words, you get to take advantage of high interest rates while still maintaining financial liquidity.
7. Savings Bonds
Savings bonds—such as Series I Bonds—are another way to get a higher interest rate on your savings. Backed by the U.S. Government, these bonds have a fixed return rate and are relatively low in risk. Basically, you are lending money to the government for a certain term, and it then pays you back with interest.
8. Diversify Your Savings
While maximizing your money with a high-interest savings account is a good first step, don't be afraid to diversify your savings into other investment vehicles. They may include certificates of deposit, money market accounts, and low-risk investments like government bonds as above.
9. Review and Adjust Your Savings Strategy Regularly
Many people open a savings account and then never change from it. You need to be proactive because your saving strategy may have to be changed periodically with changing interest rates and economic conditions. You may need to move your money into another account to benefit from new promotional offers or alternative, better-yielding investment options.
10. Avoid Unnecessary Fees
Finally, avoid all unwanted fees attached to your savings account. These include monthly account maintenance fees, ATM fees, and other charges that eat away at your interest earnings. Negotiate with your bank to ensure minimum or no fees are levied on such accounts to maximize your savings. If they can’t come to the party, consider changing accounts.
Conclusion
Maximizing the interest you earn from your savings account is a good start toward building wealth and securing a better financial future. By using these ten tested methods, you can be certain that your money is working hard for you.
Be vigilant, shop the rates, review, and don’t be afraid to adjust your strategy as the economy changes to make sure you're getting the best deal possible. For a little effort, you can maximize the interest on your account and see your savings wallet fattening over time.
