The 5 Best Alternatives to Bank Savings Accounts

When it comes to saving money, many people turn to traditional bank savings accounts as a safe and secure option. However, with interest rates at historic lows, these accounts may not be the most lucrative choice for growing your savings. Fortunately, there are several alternatives to bank savings accounts that offer higher returns and additional benefits. In this article, we will explore the five best alternatives to bank savings accounts that can help you maximize your savings potential.

1. High-Yield Savings Accounts

If you are looking for a safe and accessible alternative to traditional bank savings accounts, high-yield savings accounts are an excellent option. These accounts are offered by online banks and credit unions and typically offer significantly higher interest rates compared to traditional savings accounts. With the convenience of online banking, you can easily manage your funds and make withdrawals when needed.

For example, Ally Bank's Online Savings Account currently offers an annual percentage yield (APY) of 0.50%, while the national average for traditional savings accounts is only 0.05%. This means that by switching to a high-yield savings account, you could potentially earn ten times more interest on your savings.

2. Money Market Accounts

Money market accounts are another alternative to consider if you want to earn a higher return on your savings while maintaining easy access to your funds. These accounts are similar to savings accounts but typically offer higher interest rates. Money market accounts often come with check-writing privileges and debit cards, making them a convenient option for everyday transactions.

For instance, Capital One's 360 Money Market Account currently offers an APY of 0.50%, which is significantly higher than the average savings account rate. Additionally, money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC), providing the same level of security as traditional bank savings accounts.

3. Certificates of Deposit (CDs)

If you have a longer-term savings goal and can afford to lock your money away for a specific period, certificates of deposit (CDs) can be an attractive alternative to bank savings accounts. CDs offer higher interest rates than traditional savings accounts, and the longer the term, the higher the rate you can expect.

For example, Discover Bank offers a 12-month CD with an APY of 0.60%, compared to their Online Savings Account with an APY of 0.40%. While you won't have immediate access to your funds, CDs can be a great option for saving towards a specific goal, such as a down payment on a house or a dream vacation.

4. Peer-to-Peer Lending

If you are willing to take on a bit more risk in exchange for potentially higher returns, peer-to-peer lending platforms can be an intriguing alternative to traditional savings accounts. These platforms connect borrowers directly with individual lenders, cutting out the middleman (i.e., banks) and allowing lenders to earn interest on their investments.

One popular peer-to-peer lending platform is LendingClub, which offers historical returns of around 4% to 6% for investors. While there is a risk of default, many platforms have implemented rigorous screening processes to minimize this risk. It's important to carefully research and diversify your investments across multiple borrowers to mitigate potential losses.

5. Investment Accounts

For those with a higher risk tolerance and a longer investment horizon, investment accounts can provide the potential for significant returns. Investing in stocks, bonds, mutual funds, or exchange-traded funds (ETFs) can help grow your savings over time, outperforming the low interest rates offered by traditional savings accounts.

It's crucial to note that investing in the stock market involves risks, and the value of your investments can fluctuate. However, historical data shows that over the long term, well-diversified investment portfolios tend to outperform savings accounts. Consulting with a financial advisor can help you determine the best investment strategy based on your goals and risk tolerance.

Conclusion

While bank savings accounts may provide a sense of security, they often fall short in terms of returns. By exploring these five alternatives, you can potentially earn higher interest rates and grow your savings more effectively. High-yield savings accounts, money market accounts, certificates of deposit, peer-to-peer lending, and investment accounts all offer unique benefits and varying levels of risk. It's essential to assess your financial goals, risk tolerance, and liquidity needs before deciding which alternative is the best fit for you. Remember, diversification and careful research are key to maximizing your savings potential and achieving your financial objectives.