Interest on your savings is available; don’t settle for earning nothing.
By Jenny Hoff, Photo by Jp Valery
Global inflation is forecasted to rise to 8.8% in 2022. You’ve probably noticed it when you’re checking out at the grocery store and find yourself spending much more than you used to, or when you’re eating out at a restaurant that recently had to hike the prices of their entrees to keep up with the increased cost of food. High inflation means the money you’ve saved is losing purchasing power by the day. The only way to fight it is to use the money you currently have to earn more money so it can keep buying you the products and services you want. It’s time to move your money out of your traditional savings account and into something that will actually pay you interest.
You’re likely working with one of the big banks, which are currently offering interest rates of .01 to .02%. You’re essentially earning zero interest on your money, even as mortgage rates and other interest-based products get more expensive. If you’re not ready to invest in real estate as our cover woman, Tamar Hermes, encourages you to do, you still have options to earn something on your nest egg.
A no-penalty certificate of deposit (CD), a money market account or a high-yield savings account are all essentially as safe as your savings account but are currently paying at least 2.5 to 3% interest, depending on who you do business with. That likely means you’ll have to switch banks from one of the big chains in order to cash in on these competitive rates.
No-penalty CD
A no-penalty CD has a term length, like a traditional CD, ranging from three months to a few years, but unlike traditional CDs, they won’t charge a penalty if you withdraw your money early. This makes them almost like a high-yield savings account, except you could earn more money if you get a good rate.
Money Market Account
A money market account is extremely similar to a savings account; however, they’re invested in the financial markets, so you will typically earn more interest than a traditional savings account. You can still access your money at any time and withdraw as needed.
High-yield Savings Account
A high-yield savings account is just a savings account that pays you more interest. The major banks don’t usually offer these because they don’t have to—most people don’t change banks or compare rates on a regular basis. Their name is enough to get customers in the door.
You’ll want to make sure the bank you work with is FDIC insured so there is some sort of protection for your money, and do a little research on whichever bank you choose. Some great websites that make it their job to compare rates are bankrate.com and nerdwallet.com. But do a little digging and compare several websites’ recommendations before moving your cash to a new home. You may not be able to keep pace with inflation, but you can at least soften the blow.