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Identifying the best places to save money and earn interest will grow your cash reserves without much extra effort. Here is an overview of the banking products that can make that happen.
Summary: The best places to save money and earn interest
A high-yield online savings account.
An interest-bearing checking account.
A CD ladder.
1. A high-yield online savings account
What online banks lack in branches, they more than make up for with high savings rates. In fact, the two are related: Because digital providers don't maintain thousands of physical locations, they can afford to pay higher rates.
Example: Make $150 in interest in one year. Keep $10,000 in an account that earns 1.50% annual percentage yield (APY is the interest rate after compounding), and you can earn a little over $150 in one year. Compare that with the less than $10 you would get from a regular savings account earning the national average rate of 0.17% APY. (See our list of the best high-yield online savings accounts.)
2. An interest-bearing checking account
Some checking accounts have high rates – 1% or more – but you may need to jump through hoops to qualify. Those might include signing up for direct deposit and making around 10 debit card transactions a month. But if you can meet the requirements, then you can help more of your money, not just what's in savings, earn a strong rate.
» Ready to browse options? Take a look at NerdWallet's best checking accounts
3. A CD ladder
With a “CD ladder,” you divide up the money you’re setting aside and put it into several certificates of deposit with different term lengths. That way, there will be multiple maturity dates. When each CD matures, you can reinvest that money into a longer term certificate while your other funds are in CDs with closer maturity dates. By doing this, you will be taking advantage of CDs with the longest term lengths, which tend to have the highest CD rates, while also having regular access to your money each year. (To compare, savings accounts generally provide more access to your money than CDs, but often have lower rates.)
» Ready to explore? Here are the highest CD rates
Here’s an example of how a CD ladder works: Instead of putting $10,000 into a one-year CD that you renew every year, divide it into five investments of $2,000. Then, open a one-year CD, a two-year CD, a three-year CD and so on. After a year, when your first CD matures, you can put that first $2,000 (and the interest earned) into a new five-year certificate. As each CD matures each year, you’ll repeat the process.
» Need more detail? Read our explanation of CD ladders
Rates may still not be as high as you might like — a 5% interest savings account, for example, is unlikely — but you’ll be able to grow your money in a safe interest-bearing account that earns much more than average.