Alternatives to Traditional Savings Accounts

Whether you want to start saving, you’ve received an unexpected sum of money or aim to completely fund your emergency savings, deciding where to store your money is half the battle. 

Traditional savings accounts are a safe and reliable option if accessibility is your main priority, but the interest you can earn at many banks and credit unions just for stashing your cash is pretty paltry. Bank of America’s savings account, for example, offers a maximum of 0.04% in interest. When you adjust for inflation and taxes on interest profits, such a traditional savings account can work against any momentum you have toward building a savings stash. 

Fortunately, the following alternatives to traditional savings accounts offer a more impressive return on your investment with higher interest rates while still offering safety and easy access to your money.

High-yield savings account

A high-yield savings account earns a higher-than-average interest rate compared with a traditional savings account, allowing your savings to grow faster each month. According to the Federal Deposit Insurance Corporation, the average annual percentage yield for savings accounts is 0.40% as of early June, whereas the top-yielding high-yield savings accounts earn at least 12 times more. The higher the APY, the faster your money grows. 

See our high-yield savings options below:

The APY associated with a high-yield savings account is a variable rate. That means it can fluctuate based on the benchmark interest rate set by the Federal Reserve. The money you put in a high-yield savings account should earn a competitive yield to maximize your savings’ growth. 

A high-yield savings account, similar to a traditional savings account,  is a low-risk deposit account, especially at a bank or credit union that’s federally insured by the FDIC or National Credit Union Administration, or NCUA, respectively. Such a high-yield saving account is insured for up to $250,000 per person, per institution. Often, these types of savings accounts are found at online banks or credit unions, most of which are federally insured. 

Certificate of deposit 

A certificate of deposit, or CD, is a timed savings account with a fixed interest rate that generally earns a higher APY than a regular savings account – but it comes with a catch. The money used to open a CD can’t be withdrawn for a certain period (referred to as a term) without incurring an early withdrawal penalty. CD terms generally range from six months to five years, but can be as short as one month and as long as 10 years. The early withdrawal penalties for most CDs require that you forfeit anywhere from 90 to 360 day’s worth of interest earned, depending on the length of the CD’s term.  

If you’re saving for a specific goal with a set timeline, don’t commit to a CD that extends past when you need to withdraw. On the flip side, select a longer term if you are looking to earn a higher interest rate and can afford to tie your money up for an extended period. 

Some banks or credit unions offer various types of specialty CDs including:

• No-penalty CDs: As the name suggests, a no-penalty CD doesn’t impose an earthly withdrawal penalty if money is withdrawn from the account before the term ends. 
• Step-up CDs: A step-up CD earns an APY that increases incrementally according to a predefined schedule within the term.
• Bump-up CDs: A bump-up CD’s APY can be adjusted to match the bank or credit union’s published APY if it increases, generally once per term upon request. 
• Brokered CDs: A brokered CD is an investment portfolio containing a collection of CDs resold by a broker or an investment firm on a secondary market.

CDs are generally federally insured by the FDIC or NCUA for up to $250,000 per person, per institution. However, brokered CDs can be issued by organizations that aren’t federally insured. It’s best to confirm the coverage before purchasing if that’s a feature you desire.

Money market account

A money market account, or MMA, combines the features of a savings account with check-writing privileges and debit card access common with most checking accounts for greater flexibility when accessing your funds. These accounts have higher savings rates than standard savings accounts, but they tend to require a minimum balance to open – sometimes upward of $500 – and generally charge monthly fees if the average balance falls below a certain threshold. MMAs earn a variable interest rate, meaning it fluctuates based on market conditions. 

Most MMAs offered by banks or credit unions are federally insured for up to $250,000 by the FDIC or NCUA per person, per institution.

Short-term bonds

Short-term bonds have a maturity time of between one and four years. Upon maturity, the issuer must pay back the bond’s face value, as well as any interest that has accumulated. You won’t necessarily lose money on a bond, but there’s also a chance you will only see gains or losses depending on market conditions and the movement of interest rates. 

The rate of return on a bond is typically fixed or floating – meaning the issuer agrees to pay a specific amount of interest, or the interest adjusts in response to the prevailing interest rate. Short-term bonds provide a safe and secure investment with a moderate return and are usually FDIC-insured. 

When should you put money in a savings account?

Different types of savings accounts are better for different savings goals. For example, a high-yield savings account is low-risk and liquid.

Alternative savings account options have the potential to earn more than a traditional savings account, but there are risks to consider. When selecting an alternative savings account, consider the APY, term length, interest rate, funding options and early withdrawal fees.

Editors’ note: An earlier version of this article was assisted by an AI engine. This version has been substantially updated by a staff writer.