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What Are Your Alternatives To Standard Savings Accounts?

Opting out of a standard savings account could earn you more returns in the long-term. Find out some of your options below.

Articles by Fred Egler, CFP®
By Fred Egler, CFP® Financial Planner, Betterment Published Oct. 22, 2019
Published Oct. 22, 2019
5 min read
  • 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.

  • Cash Reserve is a high-yield cash account that can help you make the most of your money.

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.

3 Alternatives to Standard Savings Accounts

1. High-Yield Accounts

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

Consider using Cash Reserve, a high-yield cash account as part of our cash management suite. It’s an easy way to save that can help you earn a variable rate of APY,* is FDIC-insured for up to $1,000,000 once deposited at our program banks, and has no minimum balance.

Start saving

Cash Reserve is only available to clients of Betterment LLC, which is not a bank, and cash transfers to program banks are conducted through the clients’ brokerage accounts at Betterment Securities.

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: 0.47%
  • 6 months: 0.87%
  • 1-year: 1.23%

Data source: DepositAccounts by lendingtree. Includes average APY (%) rate over the past five years and is subject to change over time. Data as of 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. Low-Risk Investment Account

Consider investing your extra cash in a low-risk portfolio instead. Betterment offers various low-risk ways to invest, and we give you the opportunity to choose any allocation, even portfolios with little-to-no stock exposure. This strategy can be useful if you are comfortable with the risk statistics provided to you while opening a portfolio and selecting your stock-bond allocation mix.

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 cash account, CD, or in a low-risk investment account.

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!

Cash Reserve

*The annual percentage yield (“APY”) on the deposit balances in Betterment Cash Reserve (“Cash Reserve”) is and represents the weighted average of the APY on deposit balances at the banks participating in Cash Reserve (the “Program Banks”) and is current as of . This APY is variable and subject to change daily. Deposit balances are not allocated equally among the participating Program Banks. A minimum deposit of $10 is required, but there is no minimum balance required to be maintained. The APY available to a customer may be lower if that customer designates a bank or banks as ineligible to receive deposits. APY applies only to Cash Reserve and does not apply to checking accounts held through Checking. Cash Reserve and Checking are separate offerings and are not linked accounts.

See Betterment’s Form ADV Part II and Terms and Conditions for additional information, including details of the deposit allocation methodology.

†Betterment Cash Reserve (“Cash Reserve”) is offered by Betterment LLC. Clients of Betterment LLC participate in Cash Reserve through their brokerage account held at Betterment Securities. Neither Betterment LLC nor any of its affiliates is a bank. Through Cash Reserve, clients’ funds are deposited into one or more banks (“Program Banks“) where the funds earn a variable interest rate and are eligible for FDIC insurance. Cash Reserve provides Betterment clients with the opportunity to earn interest on cash intended to purchase securities through Betterment LLC and Betterment Securities. Cash Reserve should not be viewed as a long-term investment option.

Funds held in your brokerage accounts are not FDIC‐insured but are protected by SIPC. Funds in transit to or from Program Banks are generally not FDIC‐insured but are protected by SIPC, except when those funds are held in a sweep account following a deposit or prior to a withdrawal, at which time funds are eligible for FDIC insurance but are not protected by SIPC. See Betterment Client Agreements for further details. Funds deposited into Cash Reserve are eligible for up to $1,000,000.00 (or $2,000,000.00 for joint accounts) of FDIC insurance once the funds reach one or more Program Banks (up to $250,000 for each insurable capacity—e.g., individual or joint—at up to four Program Banks). Even if there are more than four Program Banks, clients will not necessarily have deposits allocated in a manner that will provide FDIC insurance above $1,000,000.00 (or $2,000,000.00 for joint accounts). The FDIC calculates the insurance limits based on all accounts held in the same insurable capacity at a bank, not just cash in Cash Reserve. If clients elect to exclude one or more Program Banks from receiving deposits the amount of FDIC insurance available through Cash Reserve may be lower. Clients are responsible for monitoring their total assets at each Program Bank, including existing deposits held at Program Banks outside of Cash Reserve, to ensure FDIC insurance limits are not exceeded, which could result in some funds being uninsured. For more information on FDIC insurance please visit www.FDIC.gov. Deposits held in Program Banks are not protected by SIPC. For more information see the full terms and conditions and Betterment LLC’s Form ADV Part II.

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