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4 Accounts that Earn Interest to Boost Your Savings

Understanding how to save your money efficiently and effectively is a vital skill to have for your financial well-being. Whether you’re saving for your child’s future college education or are planning for an anniversary trip to Europe, how you save your money could determine if these dreams can become a reality. As you consider your own saving habits, it is important to know what accounts you already have your money tucked away in and how they’re working for you.

In this article, we’ll explore some strategies that can help you boost your savings. One of the most important ways for your savings to increase is by putting your savings in an account that will earn interest. There are several different interest-earning accounts you can choose from, but we’ll cover the ones that could best help you.

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What Are Interest-Earning Accounts and How Do They Work?

Before we explore which accounts can best help you meet your savings goals, let’s define interest-earning accounts and how they work. An interest-earning account is a savings account that accumulates interest from what a bank or credit union loans out to their other members. This interest, known as the Annual Percentage Yield (APY), can vary depending on what account you choose to have. The APY on your account is calculated yearly based on the compound interest rates your financial institution offers, which can vary.

As you’re planning to grow your savings, it is important to consider what interest rates will affect you the most. Here are some interest-earning accounts for you to consider:

  1. High-Yield Savings Accounts

If you’re looking for an account that offers a high APY, then a high-yield savings account (HYSA) might be the best option for you. HYSAs typically have higher APYs because of the lower overhead costs and risk tolerances from financial institutions. Since these accounts are low risk, easily accessible, and have higher rates than traditional savings accounts, putting your savings into a HYSA might be a great next step for you to move forward in your financial journey.

  1. Traditional Savings Accounts

While traditional savings accounts don’t have as high rates as a high-yield savings account, they still could be useful for you to expand your savings. Sometimes a HYSA can require you to have a higher minimum balance to open an account, but traditional savings accounts requirements are typically lower. These accounts could be useful if you’re just beginning to save and establishing your savings goals.

  1. Money Market Accounts

An account that can have a higher interest rate on your savings compared to general savings accounts is a money market account. According to the FDIC, the average APY on money market accounts is 0.67%* APY. Similar to a HYSA, you may have to put in a minimum deposit to open your account and have a minimum balance to earn dividends. Money market accounts are unique from other savings accounts because they can give you the option to use your debit card or write checks. While you can have these features on the account, there are restrictions on how many withdrawals you make if you use them. This helps give you accountability, so you’re not spending your savings wastefully.

  1. Certificates of Deposit (CDs)

Out of all the savings accounts you can choose from, certificates of deposits (CDs) can offer the highest interest rates. If you’re wanting to invest your savings long-term, a CD or term share certificate could be ideal for you. They have a fixed term where you lock in your money for a specified period of time, and there will be a certain APY that you will earn during that time. Typically, the longer the length of the term, the higher your APY will be. Since your money is locked in, banks and credit unions can offer higher rates for these accounts. To open a certificate, you’ll likely need a minimum deposit to put into your account.

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Are There Any Fees Associated with Interest-Earning Accounts that Could Affect My Savings Growth?

As you consider each of these savings accounts, it is important to know what restrictions or fees may be associated with them before you choose one to know what will work best for you. Make sure to ask your bank or credit union if they have any distinctive charges on the accounts they offer. Some of these could be:

  • Excessive withdrawal fees could occur if you take too much out of your account each month. Keep track of how much and how often you’re accessing your account. For example, there are penalties for withdrawing from a certificate of deposit if you have not reached the end of your chosen term.
  • Lack of use could be a problem if you remain inactive with your account. Generally, financial institutions will have a specified amount of time that your account can remain dormant, but when the time is up, you might get charged a dormancy fee.
  • Overdraft fees can accumulate if you continually take more out of your savings than what you have. These fees can be very expensive, so it’s very important to be aware of how much you’re using.
  • Maintenance fees, which could be monthly, are fees distributed by banks or credit unions for their upkeep of your account. While most fees are given because of over spending, these fees have nothing to do with your interactions with your savings. It is a basic upkeep fee that many banks or credit unions charge to their members.
  • Minimum balances are often required for most savings accounts. If your savings fall below the required amount that needs to be in your account, you could be charged fees until you add more money to your savings.

Are There Any Risks Involved with Interest-Earning Accounts?

As you choose how you’re going to protect and grow your savings, you might be concerned about what risks could threaten your financial well-being. It is crucial to know that most banks and credit unions are federally insured. If your accounts are with a bank, they are likely insured by the Federal Deposit Insurance Corporation (FDIC). Credit unions are federally insured by the National Credit Union Administration (NCUA). Both the FDIC and NCUA cover up to $250,000 for individual accounts.

Knowing your savings are in a safe place and insured helps give you the peace of mind for your financial future. While the savings accounts we’ve mentioned are safe options for you, there are a few things to be aware of when managing your savings.

  1. Inflation & Interest Rate

No matter what savings account you choose to have, you need to be aware that each one could be susceptible to inflation. Even though banks and credit unions will set their APYs to combat inflation, there is still a risk that the rate could eventually become outmatched. Let’s consider a high-yield savings account. While there is no apparent risk with investing in a high-yield savings account, it is important to be aware that it may not be the most ideal plan for you if you have a long-term savings goal. You might benefit better if you choose to invest your savings and adjust your financial plan to stay away from inflation since the APY on your account could fluctuate over time.

  1. Access Restrictions

Before you put your savings into an interest-earning account, be sure you know your intended purpose for those savings. Designating which savings go into what account will help you keep track of how often you’ll need to withdraw and access your account. A threat you might run into for different accounts is how often you access your savings. While traditional savings accounts are easily accessible, CDs are very restricted. You will want to consider this when you’re crafting your financial strategy, so you know what you’ll need to access for your emergency fund, retirement, etc.

What Tips Are There for Maximizing the Interest I Earn on My Savings?

If you’re new to strategizing your savings and how to keep track of changing interest rates, keep these tips in mind!

  • Be mindful of your personal financial goals and overall strategy.
  • Research for the best rates. Look at different financial institutions and compare what they offer to identify the best deal for you.
  • Try to stay away from withdrawals, when possible, to protect yourself from over spending and expensive fees.
  • Watch for changes in interest rates and keep an eye on inflation.
  • Set up automatic transfers so you won’t be tempted to use your earnings instead of saving them.
  • Keep an eye out for any bonus offers or special promotions.
  • While investing can come with a risk, talk to your financial advisor about what investment strategies could help you increase your wealth.

Grow Your Financial Stability with Leaders Credit Union

As you begin or continue to grow your wealth, it is important to know the best savings accounts that earn interest. Saving wisely helps you to have clarity when managing your finances, which could improve your overall lifestyle. Whatever financial circumstance you find yourself in, it is never too early or too late to start putting your money to work.

Are you wanting to boost your savings? Leaders Credit Union offers great rates on their savings accounts and certificates. Learn more and open your saving account today. 

If you need help with setting financial goals, download our free financial Smart Budgeting Tool Kit or schedule an appointment with one of our financial champions for a free financial wellness check.

*Rates as of April 1, 2024.