The average savings account pays just 0.06% annual percentage yield, according to the Federal Deposit Insurance Corp. At the biggest national banks, the rate is just 0.01% or so. But with a little searching you can earn a much more competitive return. Here’s how.
Switch to a high-interest online savings account
If you’re OK with ditching bank branches, it’s possible to find online-only accounts that pay 1% or more. Though some consumers may feel nervous about online banking, it’s becoming increasingly popular, and mobile apps make it very convenient. Rest assured that as long as your online bank is a member of the FDIC, your deposits of up to $250,000 are insured by the government.
» Wondering what online banks have to offer? See our experts’ picks for NerdWallet’s best high-yield online savings accounts.
Look for a high-yield checking account
Features like free checking or a low monthly maintenance fee will help you hang on to more of the money in your checking account. But you can do even better by putting your spending money in an interest-bearing checking account. Typically the rates range from 0.01% to 1%.
The trick is to keep a close eye on your account in order to avoid fees that would eat away at the interest you’re earning. Higher-yield accounts generally require you to jump through hoops on a regular basis. Examples include setting up direct deposit, using your debit card a set number of times each cycle, or using online bill pay. For some accounts you may have to join a credit union.
Many checking accounts require only a $1 minimum to earn the APY, although if you can keep at least $100 in there at all times, you’ll likely snag higher rates.
» Is interest checking right for you? See some great options among NerdWallet’s best free checking accounts.
Join a credit union
Compared with traditional banks, credit unions pay somewhat higher average interest rates on savings accounts, CDs, money market accounts and interest-bearing checking accounts. Credit unions were paying an average of 0.13% on savings accounts as of June 2017; at some individual credit unions, members earn yields north of 1%.
Many credit unions restrict membership based on your job or where you live. But some of the best deals available are from credit unions with extremely flexible requirements — in some cases, just a small, one-time charitable donation. Geography is also less of an issue these days, thanks to online and mobile banking, along with shared ATM and branch networks.
» Explore the high yields offered by NerdWallet’s best credit unions.
Set up a CD ladder rather than just one CD
CD yields remain low, but if future Fed hikes cause them to rise, CD holders could benefit by adopting a new strategy. In general, the longer the term of the CD, the higher the rate. So consumers with a stash of cash typically try to commit to the longest term that they can, say, five years or longer.
But if you believe rates are going to creep upward, locking up your money for many years is the last thing you want. Instead, you could use a “CD ladder,” dividing up your money and putting it into several CDs that have different terms.
So rather than put $10,000 into one five-year CD, you could divide it into five investments of $2,000. You’d then purchase 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 into a new five-year certificate, hopefully at a higher APY. As each CD matures, you’ll repeat the process.
This example was calculated using the average national rates for bank CDs, which are relatively low. For example, the average 60-month CD pays just 0.87%. But APYs above 2% on five-year CDs are available at online banks and some credit unions.
Regardless of whether interest rates stay relatively flat or slowly rise, it’s always possible to do better for yourself by shopping around for savings accounts with the highest interest rates you can find.
Updated Sept. 18, 2017.