With interest rates on the rise, keeping your money in a traditional savings account isn’t going to earn you much these days. The national average for savings account interest rates is sitting around 0.17%, while the average online savings account rate is about 0.60%. That’s not even enough to keep up with inflation, which means your money is losing purchasing power over time.
So where should you put your cash if you want to try to maximize returns? Here are some of the best options while interest rates are high.
High-Yield Savings Accounts
One of the simplest places to put your money is in an online high-yield savings account. The best high-yield savings accounts are offering around 2.5% APY or higher right now. That’s over 15 times more than the average savings account rate.
The biggest advantage of high-yield savings accounts is that your money is still easily accessible. You can withdraw funds anytime without penalty. These accounts are FDIC insured up to $250,000 per depositor, so they provide the safety of a savings account with the higher returns of a CD or money market account.
Some of the top high-yield savings accounts right now include:
- Bask Bank Interest Savings – 3.10% APY
- UFB Direct Savings – 3.01% APY
- Bread Savings – 2.85% APY
- Lafayette Federal Credit Union – 2.75% APY
- Quontic High Yield Savings – 2.52% APY
Shop around and compare rates to find the best high-yield savings account for your needs. Some may have higher rates but also higher minimum balance requirements.
Read More: The Warren Buffett Way: 10 Must-Know Rules for Wealth Preservation
Short-Term CDs
Certificate of deposit (CD) accounts usually pay higher interest rates than savings accounts. The catch is that you have to lock up your money for a set period of time, anywhere from 3 months to 5 years. If you withdraw early, you’ll face penalties which could negate any interest earned.
But if you don’t need immediate access to your cash, short-term CDs with terms of 6 months or 1 year can earn you more than high-yield savings right now. Rates on 1-year CDs are in the 3.00-3.50% APY range at many online banks. Compared to the national average savings account rate of 0.17%, that’s nearly 20 times more interest!
Some top picks for 1-year CDs include:
- Bread Savings 1-Year CD – 3.50% APY
- Quontic 1-Year CD – 3.51% APY
- Synchrony 1-Year CD – 3.25% APY
- Marcus by Goldman Sachs 1-Year CD – 3.15% APY
- Ally Bank 1-Year CD – 3.10% APY
Shop around for the best short-term CD rates to maximize your returns over the next 6-12 months. Just be prepared to keep your money locked up for the full term.
Money Market Accounts
Money market accounts (MMAs) offer another savings option with high interest rates and check-writing privileges. The minimum balance requirements tend to be higher than high-yield savings accounts, usually around $10,000 or more. But in return you can earn up to 3% APY or more.
The benefit of MMAs is that you can write a limited number of checks per month. This gives you quick access to funds if needed, with interest rates surpassing regular savings accounts. The top money market accounts today include:
- Bask Bank Interest Checking – 3.10% APY on balances up to $25,000
- Empower Money Market – 2.75% APY on balances up to $50,000
- Quontic High Yield Money Market – 2.61% APY on balances up to $1 million
- MutualOne Bank Premier Elite MMA – 2.56% APY on balances above $2,500
- Luxury Asset Capital MMA – 2.45% APY on balances above $100
Compare MMA minimum balances and features to find the right one for your cash holdings. The liquidity and high rates of MMAs make them ideal savings vehicles when interest rates rise.
Related: Dave Ramsey’s 5-Step Path to Financial Success
I Bonds
Looking to protect your cash from inflation? Series I savings bonds, commonly called I bonds, can help. These bonds pay interest based on two components:
- A fixed rate for the life of the bond (currently 0.0%)
- An adjustable inflation-based rate that changes twice per year (currently 9.62%)
The combined rate for I bonds issued between Nov 2022 and April 2023 is 9.62%, among the highest they’ve ever been. You can purchase up to $10,000 in I bonds electronically at TreasuryDirect.gov each calendar year. The catch is you can’t cash them in for 12 months, and there’s a 3-month interest penalty if you sell before 5 years.
But if you have cash you know you won’t need for at least a year, I bonds can provide an inflation-protected return far outpacing savings accounts in this rising rate environment. Just remember I bonds cannot be used as collateral for loans, and aren’t appropriate for short-term savings goals.
529 College Savings Plans
If you’re saving for education, a 529 college savings plan may offer another savings alternative while rates are high. Many states now offer 529 investment options paying well above 2% or more in interest.
For example, Indiana’s CollegeChoice 529 Direct plan offers a Principal Plus Interest option currently yielding 3.25%. Utah’s My529 plan has a 1-Year Fixed Rate CD at 4.54% APY. Other options like target-date funds and ETFs can earn stock market returns.
The tax benefits of 529 plans make them a smart education savings vehicle on their own. But in today’s environment, they can also provide higher yields than basic savings accounts. Shop state plans to find the best investment options and highest rates for your timeframe.
Keep in mind that 529 investment earnings aren’t guaranteed – you may lose money – so make sure you choose an appropriate asset allocation for your timeframe. For near-term college savings, pick conservative options like money market funds and CDs.
Also See: Navigating Large Deposits: How to Safely Handle Deposits Over $10,000
The Takeaway
No matter where you park your cash, the key is choosing an option aligned with your goals, investment timeframe and risk tolerance. It pays to shop around for the highest rates from online banks and credit unions. But don’t chase yields without considering how and when you’ll need the money. Keeping your cash savings liquid is still the top priority.