Don’t Like Your Savings Account Yield? You Have Other Options

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.

Crossroads

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.

Internet Banks

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.

CDs

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

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

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Author Info

This post was written by David Dierking. David lives outside Milwaukee, Wisconsin and has been working in the financial services industry for over 13 years with a background in investments, accounting, and marketing. He earned his Chartered Financial Analyst designation from the CFA Institute in 2004 and was recently published in the Milwaukee Business Journal. You can also check him out at The Ultimate Fit Challenge

5 Responses to “Don’t Like Your Savings Account Yield? You Have Other Options”

  1. txtrader |  Sep 12, 2010 at 4:50 am

    Capital One is the best bet right now. The rate for InterestPlus Savings is 1.35% and minimum balance is $1000. Plus your terrestrial bank accounts and online accounts are available on the online banking website. This allows instant transfers of branch deposits to the higher bearing accounts and visa versa. So there is no lost interest during an electronic ACH transfer as there is with ING or Chase. They really are the No Hassle Banking system.

    Another option is GE Interest Plus from GE Capital. Yields are currently at 1.31% for less than 15K balance, 1.46% for 15K to less than 50K, and 1.61% for 50K and higher. These are really 7 day notes but with immediate deposit or withdrawl and a regular checkbook is available. So it is just as liquid as any checking account. The website provides daily balance, interest accrual information, and ACH transfer features like you would see with any online banking system.

  2. youngandthrifty |  Sep 12, 2010 at 5:37 pm

    What I do is I have a “traditional bank account” (chequing) and keep the minimum amount in it so that I won’t have to pay the pesky fees.
    Then I transfer a certain amount each pay cheque to my savings account (online).

    Great post!

    I didn’t know that money market funds weren’t FDIC protected. Learn something new every day!

    • David |  Sep 13, 2010 at 10:02 am

      Bank money market accounts will be covered by FDIC insurance. Money market mutual funds offered by companies like Vanguard or Fidelity will not be.

  3. CA Karan - Finance Advisor |  Sep 15, 2010 at 11:05 am

    I feel Bank Fixed Deposits are still the best… Although offer a low Interest Rate but they also provide us with the much needed liquidity and safety which is very imporatnt these days….

  4. ditchtheboss |  Oct 05, 2010 at 2:21 am

    Thank you for posting this article on my weekly financial independence compilation.

    Hope to see another one in my next edition.