Don’t Like Your Savings Account Yield? You Have Other Options
By David Dierking
The current market environment has definitely not been kind to savers. The Fed has dropped interest rates to near record low levels in order to stimulate the economy. While that’s great news for anybody who may be in the market for a loan, it’s wreaking havoc on anybody looking for a halfway decent yield on their savings.
Bank savings accounts are earning virtually nothing and there’s not much relief on the horizon. There is good news though. You don’t have to settle for those rock bottom yields. There are higher yielding alternatives out there. While they won’t remind you of the rates of years past they will make your account just a little bit fatter.
The national average bank savings account rate is currently about 0.21%. If you’re looking for something better than a bank account yield, check out these options.
If you do most of your personal banking online anyway, you might find that switching over to an internet bank is a better choice for you all around. Institutions like ING Direct and Ally Bank offer savings account rates over 1.00%. The drawback of course is that all banking with these accounts is done exclusively online. There are no bank branches to visit. For this reason, it’s best to maintain an internet bank account along with your traditional bank account so you can easily transfer money back and forth for any reason.
| Get the most of your money with these High-Yield Savings Accounts:|
Money Market Mutual Funds
Money market mutual funds operate in essentially the same way that bank money market accounts do. The main difference is that money market mutual funds don’t carry the same FDIC insurance that their bank counterparts do (but don’t let that scare you away as no money market mutual fund has ever lost money). The lack of FDIC insurance means that you can get a slightly higher yield when compared to a bank account. Yields on these accounts are pretty comparable to bank account yields right now but expect to see some separation when yields start returning to normal.
This isn’t truly comparable to a bank account since you’re locking your money up in exchange for a higher rate. If you’re willing to commit your money for as little as 12 months, you can find rates currently as high as 1.50%. For example, you can earn 1.45% APY with a Discover Bank 1-year CD; you can also get an Ally Bank 11-month No Penalty CD at an yield of 1.32%. If your CD is covered by FDIC insurance, your CD is in essence risk free.
Ultra Short Funds
These should not be directly compared with bank accounts either as they are potentially risky investments. Ultra short funds typically invest in things like banker’s acceptances, CDs and bonds with maturities of one year or less. These can fluctuate in value on the open market so the potential is there to lose money on your investment (although these funds are designed to be low risk investments). Do your research to find the right fund and you could find yourself earning between 1.50% and 2.00% in exchange for the bit of added risk you’re taking on.
Peer-to-peer lending offers another alternative to traditional bank accounts. Led by social lending platform providers Lending Club and Prosper, P2P lending has become mainstream for many who have difficulty obtaining a personal loan from a bank after the financial crisis. The P2P lending boom also provide investors, a.k.a. the lenders, one more option to diversify their investments and gain a respectable return at the same time. According to Lending Club, lenders enjoy an average return of 9.66%, beating many traditional investments. If you are interested in P2P lending, you can get $25 from Lending Club to start lending.
No investment comes without its share of downside. To move up the yield curve, you’ll need to give back some of the safety, flexibility or account access that comes with a typical bank account. But if you know where you’re willing to be flexible and know all of your choices, you could be the envy of savers everywhere.
Photo credit: Gurugo
This article was originally written or modified on . If you enjoyed reading this post, please consider subscribing to my full RSS feed. Or you can also choose to have free daily updates delivered right to your inbox.