Five Alternatives to Bank Savings Accounts

bank savings accounts

Though bank savings accounts are a great way to store money for a future vacation or emergency fund, these accounts are not the best way to grow your savings and protect your financial future. With an average interest rate of .46%, bank savings accounts provide little return. Luckily, there are five solid alternatives to the traditional bank savings account that safely hold and grow your money.

Five Alternatives to Bank Savings Accounts

Consider these alternatives to regular savings accounts.

1. High-Yield Savings Accounts

High-yield savings accounts are a popular alternative to traditional ones, allowing holders to deposit and withdraw funds as needed. Rather than the relatively low-interest rates offered by traditional savings accounts, these accounts offer higher interest rates, providing higher returns for holders. This kind of account is typically offered exclusively on online platforms. This reduces operating costs for the company and passes on those returns to account holders.

While these accounts can provide more meaningful returns for account holders, there are some negatives to holding this type of account. Interest rates may not be as stable as with a bank savings account since interest rates are based on current market conditions. These accounts also have limited in-person banking services, which may frustrate some users. Additionally, high-yield savings accounts typically have higher minimum balance requirements and fees.

2. Money Market Accounts

Money market accounts (MMAs) present another alternative to traditional bank savings accounts. These accounts are similar to regular savings accounts in that they provide a safe place to put money and provide interest. However, these accounts often have tiered interest rates, meaning higher balances will earn a higher interest. MMAs also offer features like check-writing, typically found in a checking account, providing flexibility for account holders.

Though it carries a higher-than-average interest rate, the tiered interest rate structure makes higher balances more favorable, meaning the benefits of this kind of account may not pay off for a while. This kind of account does not replace a standard checking account since check-writing and withdrawals are limited. Money market accounts compromise between traditional savings and checking accounts, balancing interest earning with flexibility.

3. Certificate of Deposit (CD)

Certificates of Deposit (CD) are conservative alternatives to traditional savings accounts. These financial instruments are time-bound savings deposits offered by banks and credit unions. When an individual purchases one, they commit to leaving the specified amount of money untouched for a certain amount of time, called its term or maturity. In return, the depositor receives a fixed interest rate typically higher than a regular bank savings account. The longer the term, the higher the interest rate tends to be.

Though CDs provide high returns, they have several drawbacks. If individuals access their funds before the CD matures, they will incur financial penalties like forfeiting a portion of the earned interest. This lack of flexibility and accessibility can be challenging, making this financial instrument unsuitable for emergency funds. Additionally, tied-up funds can prevent depositors from investing in other, potentially better, opportunities.

4. Low-Risk Investment Options

Investing can provide individuals with an alternative to bank savings accounts that reap higher returns. All investments carry some risk, but there are lower-risk investment options that can give high rewards. Standard investment options include stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Diversification is the key to reducing risk. Diversification means spreading your assets across different investment options and industries. A professional financial advisor can help individuals create a well-diversified portfolio of stocks, bonds, and other assets to meet their risk and reward goals.

5. Peer-to-Peer Lending

Peer-to-peer (P2P) lending matches borrowers with lenders. This direct lending model bypasses banks, allowing borrowers and lenders to reach their financial goals. This lending is typically done through online platforms where borrowers make loan listings, and lenders choose listings that align with their risk tolerance and investment goals. P2P lending typically provides higher interest rates than bank savings accounts. However, it also comes with higher risk.

There is a risk that borrowers may default on their loans, leading to a loss for lenders. These platforms are also not FDIC-insured, so if the borrower defaults, there is no guarantee that the lender will recover the principal. When choosing this method of growing your finances, keeping an eye on risk ratings is essential. 

Interested in Learning More?

Bank savings accounts offer a safe place to store your money. However, if you want to save for retirement, gain financial independence, or grow your money, there are better options. Reach out to a financial advisor, like Masters Insurance, today to find the best alternative for you and your financial goals!

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