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5 Ways to Increase the Yield on Your Savings
After years of paying little to no interest accounts are starting to offer higher rates
BrianAJackson/Getty Images For most of the past 14 years, the highest return you could get from your savings account was a bland smile from your banker. But short-term interest rates are rising, thanks to the Federal Reserve Bank’s efforts to slow down the economy and squash inflation. Currently, you can get as much as 3.65 percent on a five-year bank certificate of deposit (CD), according to Bankrate.com. That may not sound like much, but on a $10,000 savings account, that’s $365, which is about $36 5 more than you’re getting now. Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. You have to shop around for those higher yields: The average five-year CD still yields just 0.87 percent. Here are five good places to look to earn additional interest on your money. 1 Bank savings accounts
The average savings account pays next to nothing . A savings account at Wells Fargo, for example, offers you 0.01 percent, which means you could double your money in 7,200 years. You can do better. currently offers a savings account yielding 3 percent, with a minimum balance of $1. also offers a 3 percent savings account. UFB Direct weighs in with a 2.85 percent yield. You may notice that Dollar Savings Direct and UFB Direct are online banks: You can’t walk into the lobby to open your account. You can, however, open an account online. The money saved on bricks and mortar allows them to offer higher yields than many traditional banks. (Quorum is a credit union.) Money market accounts are a variant of savings accounts that typically pay higher interest rates and come with check-writing capabilities. However, money market account holders are usually limited to six withdrawals a month, not including withdrawals from automatic teller machines (ATMs). Here again, online banks tend to offer the highest yields. 2 Bank CDs
A typically offers a higher yield than a savings account or a money market account. That’s because a CD ties up your money for a set period of time, typically three months to five years. You’ll have to pay an early withdrawal penalty if you take money out of your CD before it matures. There is no maximum penalty, but the early withdrawal penalty is typically 90 to 180 days’ interest. Groceries 20% off a Freshly meal delivery subscription See more Groceries offers > For most people at the moment, the better bet is a high-yielding savings account or money fund. “If you’re a betting person, get the best rate on a savings account now and wait until the Fed goes into pause mode” before locking in yields with a CD, says Ken Tumin, founder of Depositaccounts.com. 3 Treasury securities
Treasury securities, which are IOUs backed by the federal government, also offer good yields. A three-month T-bill yields 3.4 percent, and a one-year T-bill yields nearly 4 percent. Interest from Treasury securities is free from , but not federal income tax. Treasury bills, which mature in one year or less, are issued at a discount, much like savings bonds. For example, you may buy a one-year, $10,000 Treasury bill for $9,750 and when the bill matures, the government will pay your $10,000. The profit is your interest. Treasury notes, which have maturities of more than one year and less than 20 years, pay interest semiannually. You can buy Treasuries from a broker or directly (and for free) from treasurydirect.gov. Most brokerages sell bank CDs as well, and can be a good way to find high-yielding CDs, Tumin says. One drawback to Treasuries: If you sell your Treasuries before they mature, you may get more or less than the security’s face value. 4 Money market mutual funds
A invests in short-term, high-quality interest-bearing securities, such as Treasury bills. Unlike a bank, which can set a yield for a certain period, money funds can only give you as much as they earn, minus expenses. The typical money fund yields 2.57 percent, according to Crain Data, which tracks the yields on the largest funds. Update now and save 25% off your next year of membership with Automatic Renewal Pay nothing now and get peace of mind knowing your benefits continue without interruption. No charge until your current term expires. . Because their yield is adjusted for inflation, Series I Savings Bonds currently pay 9.62 percent. If you buy one between now and Oct. 31, you’ll get that yield for the next six months. Yields for new I bonds change in November and May, and are adjusted according to changes in the Consumer Price Index (CPI), the government’s main measure of inflation. Given that the CPI soared 8.3 percent over the 12 months ended August, it’s a good bet that the yield on I Bonds issued in November through May will be higher than CD and money market yields. As with other Treasury securities, interest from I bonds is free from state income taxes. You can only buy $10,000 worth of savings bonds per calendar year — $15,000 if you use $5,000 from your income tax refund. You can’t cash them for one year, and if you cash them before five years, you’ll lose the previous three months’ interest . John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter for Kiplinger's Personal Finance and USA Today. MORE FROM AARP AARP NEWSLETTERS %{ newsLetterPromoText }% %{ description }% Subscribe AARP VALUE & MEMBER BENEFITS See more Finances offers > See more Vision Benefits offers > See more Retirement offers > See more Technology & Wireless offers > SAVE MONEY WITH THESE LIMITED-TIME OFFERS