Opening a savings account has always been considered a good idea if you’re trying to put money aside.
However, these days, traditional savings accounts are providing lower and lower interest rates, to the point that opening one has become almost redundant if you’re hoping to grow your savings.
We provide some alternatives that may be better than a savings account.
Luckily, there are several low-risk alternatives to traditional savings accounts that will allow you to separate your savings in a convenient way while increasing your interest rate.
Read on to learn more about your options when it comes to saving money without a savings account.
Alternatives That May Be Better Than A Savings Account
Online Banks/Credit Unions
Just because the interest rate at your current financial institution isn’t what it used to be doesn’t mean you can’t find better interest rates through credit unions or other online banks.
So, before you go looking into other alternatives, consider simply transferring your savings account to another institution.
Online banks can offer better interest rates because they don’t have the same overhead costs brick-and-mortar banks have to deal with to keep their physical branches up and running.
If you’re not familiar with how credit unions work, they work in much the same way as your average bank, it’s just that the financial services offered are more limited.
To compensate for the limitations on financial services with credit unions, though, you’ll get to enjoy much better interest rates on your savings account.
The reason credit unions are able to provide better interest rates is because these unions are nonprofit organizations, federally insured by the NCUSIF (National Credit Union Share Insurance Fund).
To give you an idea of the improvement you can expect on your interest rates, while some banks currently have interest rates of just 0.09%, you could find yourself earning 1.25% with a credit union savings account.
Money Market Accounts
If you’re looking for an easy, uncomplicated alternative to your traditional savings account that will offer you a better interest rate, consider opening a Money Market Account.
There’s very little difference between a Money Market Account and a regular savings account since both are insured by the FDIC (Federal Deposit Insurance Corporation) other than the fact that the latter offers fewer checking account services.
For instance, you might not be able to cash as many checks.
However, in exchange for this slight inconvenience, you’ll get a higher interest rate providing that you choose a high-yield Money Market Account.
Your interest rate could go up by about 0.15%, which may not sound like much, but given how easy it is to move from a traditional savings account to a Money Market Account, we would say it’s worth it.
P2P Lending Services
P2P stands for Peer-to-Peer. A Peer-to-Peer Lending Service is typically accessible online, and it’s become much more popular over the last decade.
The reason P2P Lending Services have become more commonplace is because they’re so convenient.
These lending services allow people to borrow money for personal loans without having to go to the bank. On top of this, investors are able to earn excellent returns on their investments.
Now, bear in mind that P2P lending is not a foolproof method of making money. People can and do lose money through these services.
However, since all borrowers must be screened and financially approved to start using the service, the risk is somewhat mitigated.
Additionally, if you do lose money as a lender, it probably won’t be more than you can afford since you can choose to contribute just $25 to an individual’s loan alongside other lenders.
Basically, a P2P Lending Account can provide you with a relatively low-risk way to put money aside and build some savings.
You just have to be prepared to do your due diligence before you invest in anything, so this is one savings account alternative that does require you to be somewhat financially literate.
Checking Accounts
Instead of opening a savings account, why not try using a high-yield checking account?
Checking accounts, providing that they are high-yield, usually have better interest rates (think 2% annually as opposed to 0.09%).
You will need to meet specific criteria in order to be approved for a high-yield checking account.
For instead, you will be expected to meet a minimum balance and you might have to make a certain number of transactions each month.
Certificates Of Deposit
This final option won’t be ideal for anyone who wants to access their savings account in the next two years.
However, if you’re planning to leave your savings untouched for a couple of years to let them grow, a Certificate of Deposit (CD) could be the perfect alternative to a savings account.
The way a Certificate of Deposit works is that you enter a contract where the longer you leave your savings tied up, the higher the interest rate you can get.
If you get a CD for just one year, you can get a significantly higher interest rate than you would from a traditional savings account (0.21%).
For two years, you could get an interest rate of around 0.95%.
Unfortunately, getting a Certificate of Deposit can be risky because if you’re dealt an unexpected financial blow and need to access your savings, you might have to pay a fee.
Therefore, you should only use a Certificate of Deposit as an alternative to a savings account if you’re already very financially stable and feel that you could continue to make ends meet without accessing your savings if the unexpected happens.
Frequently Asked Questions
Should I Put Money In An ISA Or Savings Account?
If you’re not anticipating being able to save a large amount of money, we recommend putting your money in a savings account.
However, if you will be saving large sums, an ISA (Individual Savings Account) might be the better choice since you may incur fees with a standard savings account if you exceed the savings allowance.
Is An ISA Savings Account Better Than Investing?
You should try to keep your money in an ISA savings account rather than trying to grow your money through investments because the former option is lower-risk, so you’ll be less likely to lose your money in the process.
Should I Take My Money Out Of The Bank?
More financial experts these days are recommending taking your money out of the bank because current rates of inflation may cause your savings to deteriorate in value the longer you hold your funds in a savings account.
This means that with some institutions, your savings account might actually start to lose you money.
Final Thoughts
As you can see, there are plenty of great alternatives to traditional savings accounts that will provide you with higher interest rates.
Something as simple as moving to an online bank could increase your interest rates with virtually no catch.
Using credit unions, money market accounts, or checking accounts are also low-risk alternatives.
Certificates of Deposit and P2P lending services are slightly higher risk, but as long as you’re financially stable and well-versed in financial matters, you can benefit from these options, too.
As a current Mortgage Underwriter with 15 years of experience, I have seen my fair share of money-related issues. Whether that be high levels of debt, not enough credit, or simply a lack of funds - I’ve had clients who fit into these categories.
Here I will share tips, tricks, and experiences on how you can get yourself back in control of your finances.
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