In this economy, it can be hard to find savings accounts that pay high interest rates. However, some options exist for obtaining the best interest rate in savings. Different kinds of accounts offer different deals, and it helps to shop around at various banks to find out who is offering the most favorable terms.
Interest and Risk
Normally, interest is compensation for risk. The more interest an account is offering, the more risk exposure the account bears. However, in the United States, personal accounts with banks are insured with the government up to $250,000 per account through the FDIC. This means that finding savings accounts that offer interest brings the benefits of money growth without the risks of investment.
Some banks offer special high-yield savings accounts, especially online banks, which have lower costs. Banks might also have high-interest checking accounts, although these can came with fees and minimum transaction requirements that make them less appealing. Both kinds of accounts can also require the owner to maintain a minimum balance, use direct deposit, use online banking tools, or other tasks to secure the higher interest rate.
Money Market Account
A money market account can bear higher interest rates than savings or checking accounts, but have higher minimum balances in order to achieve those returns. In some cases, the minimums for the highest rates can be above $10,000. Money market accounts might not be insured with the FDIC if they are taken out with a credit union rather than a bank. Money market accounts might also restrict the amount of money you can withdraw per month.
Certificates of Deposit
A certificate of deposit (CD) is a deposit note that offers a predetermined rate over a predetermined time period. Rates can be higher than on savings accounts, with the caveat that the depositor is usually locked into that rate, because the account will have penalties for withdrawing the money before the CD has ended. This can help solidify gains, but makes it hard to switch to a different account if interest rates elsewhere rise and makes the money less easy to use as an emergency fund.
Andrew Gellert is a graduate student who has written science, business, finance and economics articles for four years. He was also the editor of his own section of his college's newspaper, "The Cowl," and has published in his undergraduate economics department's newsletter.