Saving money is one of those things that is stressed almost from the time you learn what money is, but savings accounts aren't a great way to do it. For example, if you put $1,000 in an account at the beginning of the year, you'd have $1,002.90 at the end of the year at the July 2013 U.S. average savings interest rate of 0.29 percent. Traditional savings accounts might not offer great rates, but the banking system offers other options. This means that you won't have to settle for the "average" interest rate.
Bank, Online, Credit Union
One way to get a better interest rate is to put your money somewhere other than in your corner bank. While some traditional banks offer good interest rates, many don't. Credit unions, which are membership-based financial institutions, frequently offer higher interest rates. At the same time, online banks, which let you access your money through ATMs and transfers and don't have the cost of maintaining a branch, also offer better interest rates.
Why So Low
There are two different reasons that savings account interest rates can be be low. The first is that if interest rates are low in generation, savings accounts will reflect this. The second is that they can be. A regular savings account is a lot like sticking your money in your mattress. There is no investment risk, and you can get to your money whenever you want. Given that a savings account has one big advantage over your mattress -- it's less likely to be stolen -- there's no reason for a bank to pay you a lot of money for the service of holding your money for you. While it's true that banks need money to lend out, they have other ways to bring in deposits than offering savings accounts.
Beyond Savings Accounts
One way to increase your interest rate is to put your money in something other than a savings account. If you can afford to take some risk and you're saving the money for the long term, you'll get a much better return on stocks and bonds. When you need to have access to the money relatively quickly, though, you're probably better off using bank accounts where your principal won't be at risk. A money market account pays a fluctuating rate of interest that is usually higher than a savings account. Certificate of deposit accounts also pay higher rates of interest but require you to leave your money in the account for a set period. They're a good tool for money that you need access to, but may be able to wait a few months or a year for. As with savings accounts, you may also be able to find better interest rates online.
Sometimes banks will offer promotions to get you to become a customer. While your savings or checking account may not be that important to them in the scheme of things, having you as a customer gives them an opportunity to sell additional financial services to you. If a bank will, for instance, pay you $50 to open an account, and you deposit $500 with them, that's equivalent to 10 percent interest. If you have to open a checking account and pay $20 for checks, you're still getting $30 net, which is a 6 percent rate of return. Since you may be able to take advantage of these promotions repeatedly by switching banks, they could end up being more valuable than the interest you earn.
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