Even though it looks like the Federal Reserve Bank is set to hike interest rates for the third time in three years on March 15th, there’s no doubt that bank saving account rates have been at ultra lows for many years now.
According to Rate Watch, the national average for most savings accounts of $2.5k or more is just .06%! That’s just $1.50 on $2,5000 in savings per year! How unacceptable is that?
In this article, we’re going to look at a couple of the ways that you can get increased returns on balances that you need to stay safe and accessible.
Method 1: Turn to FDIC Insured Savings Accounts
It may seem like a simple fix, but moving your money to an online savings account that is FDIC-insured can really help your savings rate improve. When it comes to traditional banks (think Wells Fargo, Bank of America, etc.), you have to pay for the expenses that those banks have on a daily basis.
The buildings, lighting, employees that work there, the little cookies that your favorite teller gives to your children each time that you go into the bank: yeah, you’re paying for all of those. It may not seem like you’re paying for them, but you are; it’s called reduced savings rates. The bank calls it “overhead costs”.
The great thing about an online bank? There’s no (or very little) overhead that you have to pay for. This means that you receive more of the profits of the bank in the form of increased savings rates.
According to Nerdwallet, both Ally Bank and Barclay’s Bank are currently offering 1% APY returns on their online savings accounts, and you don’t have to make any minimum monthly deposit or maintain a minimum balance!
Method 2: Consider Peer-to-Peer Lending
Alternatively, you could choose to invest your money by making miniature loans to people like you who may need it. Platforms like Prosper, Lending Club, and Lending Tree now allow you to perform the job of the bank and make loans to your peers in exchange for interest payments.
Although there is no FDIC insurance at play in peer to peer loans to protect your principal, historical data shows that an incredibly low percentage of top-graded loans ever default on these platforms.
In fact, you can purchase notes as small as $25 which means that you can diversify your investment into 100 notes by making a small investment of just $2,500. Right now, only 47 of the 50 states allow peer-to-peer lending investments, so you will have to make sure that it is legal in your state. However, this is a great way to find extra returns on your savings.
Method 3: Consider Step-up CDs
It’s true, even CDs aren’t paying that much these days. Besides that, you have to put aside so much of your money for a set amount of time that you don’t have access to when you buy one.
However, a few banks are offering a reasonably good product right now that you can look to take advantage of. Step-up CDs are just like a regular CD paying regular interest, except they have one incredibly valuable caveat at play. They “step-up” their interest rate as many as two times a year based on another factor: inflation.
Different banks track inflation using different means, factors, and ratios, but the kinds of change that President Trump is promising right now are almost sure to produce hefty levels of inflation. As a result, these step-up CDs (that used to look like a quite pitiful product, mind you) are beginning to look like a very good short-term investment.
Good News: The Fed is Raising Rates
Thankfully, it looks like our country’s central bank is about to go on an interest rate-raising spree. This means that you probably won’t have to deal with low interest rates on your savings account for much longer. Still, these products can be great options for you to find some higher interest in the meantime.
As always, make sure that you discuss your investment decisions with a trusted financial advisor before making any sort of money movements. While all of the options listed above are good ones, they may not be suited for your personal financial situation and long-term goals.