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.
Switch to a high-interest online savings account
If you’re OK with moving money to a bank without branches, it’s possible to find accounts that pay 1.5% or more. You don’t have to necessarily close your existing savings accounts, but keep enough in them to avoid fees. 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.
Compare three online savings options
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Set up a CD ladder rather than just one CD
In general, the longer the term of the CD, the higher the rate. So consumers investing in a CD typically try to commit to the longest term they can, say, five years or longer. But CD yields have risen a bit with the 2017 Fed hikes, and CD holders could benefit by adopting a new strategy.
With a “CD ladder,” you divide up your money and put it into several CDs that have different terms. That way you have greater access to your money but still get the highest CD rates.
With a CD ladder, you split our money into several CDs that have different term lengths.
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.
The average national rates for bank CDs 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.
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%.
At some credit unions, members earn yields north of 1% on savings accounts.
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 competitive yields offered by NerdWallet’s best credit unions.
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.
Regardless of whether interest rates stay relatively flat or slowly rise, it’s always possible to do better for yourself by shopping around for accounts with the highest interest rates you can find.
Jeanne Lee is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org. Twitter: @jlee_jeanne. Staff writer Caren Weiner Campbell contributed to this report.
Updated Oct. 18, 2017.