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When earning interest, your choice of bank account matters more than you might think. With the right account, you can earn more without extra effort. Here are four ways to get there.
Summary: 4 ways to earn more interest
Open a high-interest online savings account.
Switch to a checking account with a high yield.
Build a CD ladder.
Join a credit union.
1. Open a high-interest online savings account
You don’t have to settle for the low rates that you typically get from a traditional brick-and-mortar bank’s regular savings account. They often earn less than one-tenth of one percent in interest. But you can do much better with an online bank, as they tend to offer high-yield savings accounts with better rates and without monthly fees. (See our list of the best high yield online savings accounts.)
Example: Make $50 in a year. Keep $10,000 in an account that earns 0.50% annual percentage yield (APY is the interest rate after compounding), and you can earn a little over $50 in one year. Compare that with the less than $10 you would get from a regular savings account earning the national average rate of 0.08% APY.
» Want to learn more? Read NerdWallet’s primer on compound interest
2. Switch to a high-yield checking account
Some checking accounts have high rates, 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, your money could earn a strong rate.
» Ready to browse options? Take a look at NerdWallet's best checking accounts
3. Build a CD ladder
With a “CD ladder,” 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
4. Join a credit union
Credit unions have slightly higher average rates on savings products than traditional banks. For example, according to the National Credit Union Administration, credit unions pay an average of 0.78% on five-year CDs as of March 2022, compared with 0.60% at banks. Contact your local credit union for rates, or browse our list of best credit unions.
» Another option for saving: Learn about U.S. savings investments
Soften the effects of inflation with a high savings rate
When prices rise because of inflation, it can lessen your spending power. Putting your reserve cash in accounts with a high rate of interest, however, can help shore up your savings. If you are looking for more ways to guard your money against inflation, consider other savings options, such as I bonds.
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.