With interest rates continuing to climb throughout 2023, a good savings strategy can help you build an emergency fund, save for a large purchase and plan for the future. Finding the right savings option to store and grow your money could mean the difference between accruing hundreds to thousands in interest.
While a savings or checking account offer easy access to your money — they’re not your only options. Money market accounts, high-yield savings options, certificates of deposit, treasury bills and I-bonds may be better choices for earning a higher annual percentage yield, or APY, on your savings. Finding the right one for you depends on your financial goals and when you’ll need to access your funds.
Here’s what you need to know about these five savings strategies for growing your money in 2023:
Money market accounts
Savings account with debit card access
Money market accounts are similar to high-yield savings accounts — they offer higher-than-average APYs and allow you to access your money whenever you need it. When offered through banks and credit unions, these accounts are insured by up to $250,000 by the Federal Deposit Insurance Corporation. The APY and interest rates are variable like savings accounts, but money market accounts may also offer debit card and check writing features to provide more access to your cash when needed. Some banks may limit how many transfers or checks you can write each month.
These accounts often offer a tiered interest rate, meaning the interest rates rise as the account balance increases. Unlike most savings accounts, there’s generally a higher minimum deposit required and you may receive a monthly maintenance fee if your minimum balance drops below the requirements.
High yielding deposit accounts
Higher rates than traditional accounts
The national average for a savings account rate is currently 0.3% — but a high-yield savings or high-yield checking account can offer even higher rates. You can find these accounts at online banks, small community banks and credit unions. These accounts can offer variable APYs of up to 2.55% and 4.25%, respectively, as they compete with larger banks to attract customers.
High-yield checking accounts may include monthly transaction minimums and cap the balances to which the higher APY rates apply, but some offer debit cards and check writing options. High-yield savings accounts allow you to transfer your money to a checking account when needed, but if you’re transferring to an outside checking account, it may take a few days to receive your money.
Certificates of deposit
Less liquidity in exchange for higher possible earnings
A certificate of deposit, or CD, lets you grow your money over time. You’ll typically earn a higher APY with a CD than a savings account — but the tradeoff is your money remains locked up for several months or years, depending on your CD term.
CDs come in a variety of flavors. Some will allow you to deposit more money into the original CD. You can combine CDs into ladders with varying maturity dates. There are even CDs that will adjust the APY to match increases in available interest rates.
Traditional CDs offered by banks and credit unions require a minimum deposit that pays a fixed interest rate and APY, but requires you to leave the money alone anywhere from three months to five years to avoid early withdrawal penalties. This is great for earning a higher return in a safe deposit account because they are also insured up to $250,000 by the FDIC. Traditional CDs, however, aren’t as liquid if you need the money in a pinch.
No-penalty CDs are alternatives that offer the benefits of increased CD rates with more flexibility over time restrictions. No-penalty CDs, as the name suggests, don’t charge a fee to access funds before the CD reaches the maturity date. The exchange in flexibility over time comes at a tradeoff of lower interest rates and APY offered.
Higher rates backed by the power of the US government
Treasury bills are one of four types of debt issued by the US government. This debt is used to fund the construction of capital projects such as building schools, highways or bridges. When you purchase a treasury bill, you’re essentially loaning the federal government money, in exchange for earning interest over time. Because they’re backed by the government, treasury bills, or T-bills, are generally secure, low-risk investments. All earnings are exempt from state and local taxes, which may prove attractive to those living in states or cities with high tax rates.
T-bills are short-term savings instruments that mature in a range of time frames of up to one year and are generally sold in $1,000 increments. There are two ways to purchase T-bills: directly from TreasuryDirect auctions or from a bank or broker on the secondary market. When buying directly from the government, the interest rate is set during the bidding process. A noncompetitive bid, the simplest way to purchase T-bills, guarantees your bid will be accepted but doesn’t set the interest rate until the auction closes. If you need to access cash before the T-bill matures, you can sell the note on the secondary market.
Series I savings bonds
Best for safe options that keep pace with inflation
Like T-bills, earnings from Series I savings bonds, or I bonds, are exempt from state and local taxes. However, these bonds earn a fixed interest rate that is partially tied to the inflation rate. When inflation rates rise, the interest rate attached to an I bond adjusts so the earning power of your savings is not eaten away by changes in the economy.
“When it comes to saving for an emergency fund, the best, and safest, option is to buy I Savings Bonds,” explains Michael Ryan, a financial coach with 30 years of experience in the financial planning industry. Earlier in 2022, I bonds reached record-high savings rates of 9.62%, but have since dropped to 6.89% — a lower, but still high interest rate.
It’s best to save your money with an I bond if you don’t need to access your cash for at least five years. You can’t access your money at all during the first year of purchasing an I bond, and you’ll lose the last three months of interest if you withdraw your money before five years. After five years, you can access your money penalty-free.
What are some strategies for earning a higher return on your savings?
Choosing a high-yield savings account will help you earn more interest than most traditional savings accounts. If you need easier access to your funds, a high-yield checking account offers interest rates that rival even the best high-yield savings accounts, but may come with high minimum deposit requirements. You can also compromise between the two with a money market account, which may offer high interest rates and debit card access.
If you don’t need to access your money for several months or years, consider a certificate of deposit. A CD can offer even higher interest rates, but will lock your money up for a period of time.
You could also consider treasury bills or I-bonds, which are savings investments backed by the federal government, and may offer higher interest rates when inflation is high. I-bonds are currently offering a 6.89% interest rate.
Where is the safest place to store my savings?
Savings accounts are among the safest places to store your money because deposits are guaranteed by the FDIC or the National Credit Union Administration up to $250,000 per depositor. FDIC or NCUA insurance protects your money in case the bank goes bankrupt. Money market accounts, CDs and US government securities are also safe places to invest your money because they also carry deposit insurance.
What’s the best savings method?
To find the right savings option for you, consider if you’ll need immediate access to your money or if you can let your money grow for several years without withdrawing it. Keeping your money in several different savings vehicles — from high-yield savings accounts to CDs and I-bonds — will let you capitalize on better rates, while providing the flexibility to access cash quickly to cover unexpected expenses.