If you’ve got money in the bank, then you’re likely aware that savings account interest rates plummeted a long time ago. For example, in the month after we opened our DollarSavingsDirect account in February 2009, they slashed their interest rate by nearly 35 percent, and WT Direct cut rates twice within a week.
Here’s a sampling of current savings rates (as of July 31, 2016):
- EverBank Yield Pledge Money Market – 0.61% APY (1.11% 1-year introductory APY is available for first-time Yield Pledge Money Market account holders on balances up to $150, 000.)
- Ally Bank Online Savings Account – 1.00% APY
- Sallie Mae Money Market Account – 0.90% APY
- FNBO Direct Online Savings Account – 0.95% APY
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.
Consider certificates of deposit (CDs)
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 dramatically since the Great Recession ended in June 2009, savings bonds from the U.S. Treasury are still very secure. For example, Series I Savings Bonds are currently paying a composite rate of 0.26 percent.
(The rate is subject to change on a semi-annual basis because it is a composite rate that depends in part on the CPI-U, which is the value of the Consumer Price Index for urban consumers.)
According to TreasuryDirect.gov, you could buy “… $10, 000 in electronic Series I bonds, and $5, 000 in paper Series I bonds, ” but the paper bonds can only be purchased with your tax refund. Other drawbacks of I-bonds are that you can’t redeem them for 12 months, and you forfeit 3 months’ interest if you redeem them in less than five years.
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 to 2 percent 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 averaged between 5.25 percent to 8.57 percent historically. It is 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.