If you’ve got money in the bank, then you’re likely aware that savings account interest rates have been plummeting. For example, in the month since we opened our DollarSavingsDirect account, they’ve slashed their interest rate by nearly 35%, and WT Direct has actually cut rates twice within the past week.
A sampling of other current savings rates as of March 1, 2010 are:
Unfortunately, things aren’t likely to get better anytime soon. This all begs the question of what you should do when your high yield savings account no longer qualifies for the “high yield” moniker. Assuming that you don’t want to tie your money up indefinitely, your options are somewhat limited.
Consider a Local Bank or Credit Union
While online banks typically offer significantly better rates than the average brick and mortar bank, you can find some great deals by looking locally. Consider both local banks and credit unions, and also look into high yield checking accounts. You might have to jump through some hoops, such as signing up for direct deposit and/or using your debit card a minimum number of times per month, but there are still deals to be had.
Another possibility would be to put your money in CDs. If you won’t need access to the full amount at the drop of a hat, you can build a CD ladder such that your a portion of your savings will be available to you on a monthly, quarterly, or yearly basis. Unfortunately, CD rates have fallen along with savings rates, so there’s not currently a lot room for improvement here.
Consider Savings Bonds
While rates on Treasury securities have fallen, there are still some decent deals to be had. For example, Series I Savings Bonds are currently paying a composite rate of 5.64%. Drawbacks of I-bonds are that you can only buy $10,000 worth of them per year ($5k via Treasury Direct and $5k in paper bonds), you can’t redeem them for 12 months, and you forfeit 3 months interest if you redeem them in less than five years. Moreover, the rate is subject to change on a semi-annual basis.
Consider Paying Off Debt
While you always need to maintain a cash cushion, there’s no point in earning a pittance on excess savings if you’re carrying debt. Instead of settling for 1-2% interest, why not throw some extra cash at your outstanding debts? Note that this breaks the liquidity rule, but it’s still worthwhile if you can swing it.
Consider peer-to-peer lending
If you’re looking for a better return and don’t mind taking on a bit of risk, check out Lending Club. It’s not FDIC insured, but returns have average 9.05% over the past 18 months. Itâ€™s free to open an account, and you can get started with as little as $25.
Just Deal With It
Last but not least, you could always just choose to suck it up and deal with the low rates. While low rates are frustrating, you have to consider how much you’re actually losing by sitting on your hands. If you don’t currently have a lot of money in savings, then you’re not missing out on much in terms of real dollars. Your time might be better spend figuring out other ways to earn extra money or otherwise improve your financial situation.
If you have any other suggestions, please share them in the comments.