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Savings Advice

What Are Your Alternatives To Savings Accounts?

Opting out of a standard savings account could help your money grow for the long term. Explore some of the smart savings vehicles available.

Articles by Fred Egler, CFP®

By Fred Egler, CFP®
Certified Financial Planner, Betterment  |  Published: March 21, 2019

Most conventional savings accounts offer a yield of 0.01%-0.10%; don’t subject your cash to that.

If you keep too much money in cash, it will lose value over time due to inflation.

Betterment offers a low-risk investment account that aims to mimic a high-yield savings account, with more flexibility.

Much like investing, retail banking is an area of finance that leaves customers largely underserved. Banks have historically offered savings accounts that come with fees and minimums, as well as transaction limits that do not let you move money in and out of them when you want to.

Unfortunately, that isn’t even the worst part: the real issue is that most of these accounts earn you next to nothing for keeping your money in them. Digging into the specifics of your own savings account might be arduous, but you will likely end with the realization that you are getting anywhere from 0.01% to 0.10% on your balance.

That’s right: A standard savings accounts will earn you around $2.50 per year on an account balance of $25,000. Would you subject your cash to that?

The good news is, you don’t have to. There are better alternatives out there, and they can help you earn up to 20x times more than your average savings account.

3 Alternatives to Standard Savings Accounts

1. High-Yield Savings Accounts

Your bank probably won’t tell you this, but if you do some quick Googling, you can find high-yield savings accounts— and their interest rates– pretty easily. High-yield savings accounts typically offer better yields than standard savings accounts.

Online banks like Synchrony and Marcus by Goldman Sachs currently offer interest rates of 2.25% annually to park your cash with them. These FDIC insured bank accounts can be a big boost for your cash and can be good alternatives to your standard savings account.

Keep in mind: high-yield savings accounts are still bank accounts. That means in most cases you may still be subject to monthly transaction limits and account minimums, limiting your flexibility.

2. Certificates of Deposit

Certificates of deposit (CD) can also stand as a better alternative— from a yield perspective— to low-yield savings accounts. CDs are also FDIC insured and will pay you based on the amount of time you keep your cash in the CD.

Like savings accounts, CDs have relatively low average annual rates, but some online banks offer more competitive ones. The longer you keep your money in a CD, the higher your yield will be:

  • 3 months: 2.30%
  • 6 months: 2.62%
  • 1-year: 2.75%

Data source: BankRate. Data as of 3/12/2019.

If you know you won’t need your cash for a specific amount of time, CDs can provide competitive yields with low risk.

However, that is their downside, too. CDs offer little flexibility, and if you need your money before the term is up, banks will likely penalize you for withdrawing. In some cases, they will collect the interest you have earned too.

3. Smart Saver

Another alternative is to invest your cash in a low-risk investment account that can offer similar returns to a high-yield savings account. Betterment offers a goal like this: Smart Saver.

Smart Saver’s current expected yield, through an investment portfolio of 100% bonds, is 2.19% as of Mar. 1, 2019. This extremely low-risk portfolio is similar to a bank account, and can be easier to open up and fund than a high-yield savings account or a CD.

You can also transfer funds from your Smart Saver goal into other investment goals at Betterment, in case they are under-funded. Smart Saver also works the other way around, so when you need the funds, you can withdraw them from Smart Saver back to your bank account.

The increase in yield is staggering. A $25,000 deposit into your Smart Saver account could earn you $547.50 per year, compared to $2.50 in a standard, low-yield savings account. That’s an extra $2,737.50 over 5 years!

Like the two previous options, Smart Saver does have some important factors to consider in your decision-making process: specifically that it is not FDIC insured and can take 4-5 business days to transfer funds into your bank account.

Explore our smart savings alternative.

Making a Decision

If you take a moment to login to your savings account, try to take a look at your interest rate. Chances are you could earn a higher yield by placing that money in a high-yield savings account, CD, or in a low-risk investment account like Smart Saver.

It’s important to note: don’t make this decision based solely on rate-chasing. Picking a spot to park your excess cash should holistically be about flexibility, fees, and its competitiveness on rates.

And if you just have too much cash in general? Invest it!

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